Erlernen Sie Von Uns, Amerika, Part III

David Leonhardt at NYT:

Remember the German economic boom of 2010?

Germany’s economic growth surged in the middle of last year, causing commentators both there and here to proclaim that American stimulus had failed and German austerity had worked. Germany’s announced budget cuts, the commentators said, had given private companies enough confidence in the government to begin spending their own money again.

Well, it turns out the German boom didn’t last long. With its modest stimulus winding down, Germany’s growth slowed sharply late last year, and its economic output still has not recovered to its prerecession peak. Output in the United States — where the stimulus program has been bigger and longer lasting — has recovered. This country would now need to suffer through a double-dip recession for its gross domestic product to be in the same condition as Germany’s.

Yet many members of Congress continue to insist that budget cuts are the path to prosperity. The only question in Washington seems to be how deeply to cut federal spending this year.

If the economy were at a different point in the cycle — not emerging from a financial crisis — the coming fight over spending could actually be quite productive. Republicans could force Democrats to make government more efficient, which Democrats rarely do on their own. Democrats could force Republicans to abandon the worst of their proposed cuts, like those to medical research, law enforcement, college financial aid and preschools. And maybe such a benevolent compromise can still occur over the next several years.

The immediate problem, however, is the fragility of the economy. Gross domestic product may have surpassed its previous peak, but it’s still growing too slowly for companies to be doing much hiring. States, of course, are making major cuts. A big round of federal cuts will only make things worse.

So if the opponents of deep federal cuts, starting with President Obama, are trying to decide how hard to fight, they may want to err on the side of toughness. Both logic and history make this case.

Let’s start with the logic. The austerity crowd argues that government cuts will lead to more activity by the private sector. How could that be? The main way would be if the government were using so many resources that it was driving up their price and making it harder for companies to use them.

In the early 1990s, for instance, government borrowing was pushing up interest rates. When the deficit began to fall, interest rates did too. Projects that had not previously been profitable for companies suddenly began to make sense. The resulting economic boom brought in more tax revenue and further reduced the deficit.

But this virtuous cycle can’t happen today. Interest rates are already very low. They’re low because the financial crisis and recession caused a huge drop in the private sector’s demand for loans. Even with all the government spending to fight the recession, overall demand for loans has remained historically low, the data shows.

Similarly, there is no evidence that the government is gobbling up too many workers and keeping them from the private sector. When John Boehner, the speaker of the House, said last week that federal payrolls had grown by 200,000 people since Mr. Obama took office, he was simply wrong. The federal government has added only 58,000 workers, largely in national security, since January 2009. State and local governments have cut 405,000 jobs over the same span.

The fundamental problem after a financial crisis is that businesses and households stop spending money, and they remain skittish for years afterward. Consider that new-vehicle sales, which peaked at 17 million in 2005, recovered to only 12 million last year. Single-family home sales, which peaked at 7.5 million in 2005, continued falling last year, to 4.6 million. No wonder so many businesses are uncertain about the future.

Without the government spending of the last two years — including tax cuts — the economy would be in vastly worse shape. Likewise, if the federal government begins laying off tens of thousands of workers now, the economy will clearly suffer.

Doug J.:

Bobo six months ago on German austerity:

The early returns suggest the Germans were. The American stimulus package was supposed to create a “summer of recovery,” according to Obama administration officials. Job growth was supposed to be surging at up to 500,000 a month. Instead, the U.S. economy is scuffling along.

[….]

The economy can’t be played like a piano — press a fiscal key here and the right job creation notes come out over there. Instead, economic management is more like parenting. If you instill good values and create a secure climate then, through some mysterious process you will never understand, things will probably end well.

An actual economics reporter (Dave Leonhardt) today:

With its modest stimulus winding down, Germany’s growth slowed sharply late last year, and its economic output still has not recovered to its prerecession peak. Output in the United States — where the stimulus program has been bigger and longer lasting — has recovered. This country would now need to suffer through a double-dip recession for its gross domestic product to be in the same condition as Germany’s.

[…..]

“It’s really quite striking how well the U.S. is performing relative to the U.K., which is tightening aggressively,” says Ian Shepherdson, a Britain-based economist for the research firm High Frequency Economics, “and relative to Germany, which is tightening more modestly.” Mr. Shepherdson adds that he generally opposes stimulus programs for a normal recession but that they are crucial after a crisis.

It’s pretty much a guarantee that any argument involving the idea of government as parent will be a faulty argument.

No one could have predicted that Paul Krugman would be right about austerity.

David Dayen at Firedoglake:

David Leonhardt is speaking simple economic truths in what must sound like a foreign language, given the tenor of debates over the past few months. Standard economic theories haven’t applied in Washington for a while, so Leonhardt’s essay has the force of the running man throwing the hammer into the Big Brother TV screen in the famous Apple 1984 commercial.

Leonhardt manages to mention that GDP is still growing too slowly in the US for mass hiring, even with a higher growth rate than Germany. He manages to note the state and local cuts that will blunt recovery. He manages to look at interest rates, which are historically low, and reason that government spending is not crowding out the private sector in any way. He calls John Boehner a liar for saying the federal workforce has grown by 200,000 employees since Barack Obama’s tenure in office (it’s about 1/4 that). He says that the problem right now is a lack of demand. He cites the much better example of Britain, which has gone whole-hog for austerity and seen negative job growth and negative GDP growth since.

I’d like to think that this kind of truth would, like resuscitating a dying patient, shock the political class back to life. More likely it will just fall down the memory hole, drowned out by the bipartisan cries of “we all want to cut spending.” The unemployed are still invisible, economic theory is still upside down, and one article won’t change that.

It would be nice if it did.

Andrew Leonard at Salon:

What do we learn from the correlation between states with the worst housing bust and budget shortfalls? If U.S. economic growth slows, the federal deficit situation will get worse. Republicans believe that cutting government spending will spur economic growth. But the evidence we have from countries that have attempted such a strategy since the Great Recession began to ebb — Germany and the United Kingdom — suggests exactly the opposite. Austerity policies are not the right medicine for a fragile economy.

Felix Salmon:

One of the best aspects of being a journalist is that you get to talk at length to the most knowledgeable and interesting experts on just about any subject you can think of. For me, yesterday was a prime case in point: a long and fascinating lunch with James Macdonald, the author of my favorite book on the history of sovereign debt. Turns out he also has a microscopic vineyard in Tuscany, so the conversation ebbed wonderfully from economics to wine and back.

Macdonald has an economic historian’s view of the current austerity debate, and he was very clear: if you look at the history of countries trying to cut and deflate their way to prosperity while keeping their currencies pegged, it’s pretty grim — all the way back to Napoleonic times. Sometimes, the peg is gold. For a good example of the destructive abilities of that particular peg, look at the UK in the 1920s, which Macdonald says was arguably worse than the US in the 1930s: shallower, to be sure, but substantially longer. The devaluation of the pound, when it finally came, was very long overdue.

At other times, the peg is simply political: Macdonald gives the example of southern Italy being locked into what was essentially the Piedmontese monetary system at the time of the Risorgimento. That might have been well over a century ago, but there’s a case to be made that it has hobbled just about everywhere south of Rome to this day — and that’s in a country with about as much internal labor mobility as between EU countries.

So from a historical perspective, the prospects for countries like Portugal, Ireland and Greece are pretty grim. They can cut their budgets drastically and stay pegged to the euro, but most of them would be better off in the position of Iceland, which can and did devalue in a crisis (and allowed its banks to default, too). So far, the Baltic states have stuck to their deflationary guns with the most determination and discipline, but such things work until they don’t: at some point it’s entirely possible that Latvia or Estonia could pull an Argentina and kickstart growth by devaluing.

Jonathan Chait at TNR:

I’m sure that, in the light of this new evidence, American conservatives will undertake a thorough rethinking of their anti-stimulus beliefs. After all, as they told us at the time, this was a natural experiment.

Our Bubbles Keep Bursting

David Streitfeld in NYT:

Few believed the housing market here would ever collapse. Now they wonder if it will ever stop slumping.

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.

“When I go out and talk to people around town, they say, ‘Wow, I thought we were going to have a 12 percent correction and call it a day,’ ” said Stan Humphries, chief economist for the housing site Zillow, which is based in Seattle. “But this thing just keeps on going.”

John Ellis at Business Insider:

Everyone thought that when the housing crisis hit, it wouldn’t hit hard in “stable” US cities like Seattle and Minneapolis.  No one thinks that anymore

David Leonhardt at NYT:

When we last listed the price-to-rent ratios in major metropolitan areas, Seattle’s was near the top of the list. Only in the Bay Area of Northern California and in Honolulu were house prices higher, relative to rents.

A sky-high price-to-rent ratio is perhaps the single best sign that an area is in a housing bubble. Real-estate agents, homeowners and even home buyers can tell a lot of stories to justify the bubble — stories about central cities or good school districts being immune to bubbles — but eventually people will realize that renting is a much better deal and more will do so.

There is no such thing as a market price that cannot fall.

Matthew Yglesias:

David Streitfeld writes that “The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.”

First see David Leonhardt on whether the boom really was all that restrained in Seattle. But the other examples are better and I think this is a reminder that the relationship between the housing market and the economy is push and pull. There was, in fact, an unsustainable bubble in house valuations across much of the country that led to localized unsustainable booms in home building and related activities. That process came to an end in 2006-2007 and we were in recession all throughout 2008 as the unemployment rose and the construction boom unwound. But then came the really giant collapse of aggregate demand in fall of 2008 continuing through the subsequent winter. Now we’re way below the long-term trend level of overall nominal spending:

Overall nominal spending equals overall nominal incomes. And we live in an economy where lots of us have contractual obligations that are nominally denominated. That’s my cable bill, it’s my cell phone bill, and it’s my mortgage, and it’s probably your mortgage too. Fortunately for me, my nominal income isn’t below its pre-crisis trend growth path. But America’s collective income is. So if our nominal income is below where we expected it would be when we signed the contracts, people are going to be unable to pay bills. That means, among other things, serious housing problems even in jurisdictions that never suffered from noteworthy construction booms.

Calculated Risk:

Leonhardt writes:

When we last listed the price-to-rent ratios in major metropolitan areas, Seattle’s was near the top of the list. Only in the Bay Area of Northern California and in Honolulu were house prices higher, relative to rents.

A sky-high price-to-rent ratio is perhaps the single best sign that an area is in a housing bubble. Real-estate agents, homeowners and even home buyers can tell a lot of stories to justify the bubble — stories about central cities or good school districts being immune to bubbles — but eventually people will realize that renting is a much better deal and more will do so.

There is no such thing as a market price that cannot fall.

I agree completely with that last sentence – no place is immune.

Price-to-rent is a great indicator, but some areas have high price-to-rent ratios because of the mix of housing units (rentals units are not perfect substitutes for buying). I prefer tracking price-to-rent over time for a particular city (as opposed to comparing cities), but a high price-to-rent ratio is definitely a warning flag.

Hey Kids, Tyler Cowen Wrote A Book!

Tyler Cowen’s new book, “The Great Stagnation”

Tyler Cowen:

That’s the title and it’s by me, the Amazon link is here, Barnes&Noble here.  That’s an eBook only, about 15,000 words, and it costs $4.00.  If you wish, think of it as a “Kindle single.”

Your copy will arrive on January 25 and loyal MR readers are receiving the very first chance to buy it.  Very little of the content has already appeared on MR.

Many of you have read my article “The Inequality that Matters,” but there I hardly touched on median income growth.  That is because I was writing this eBook.

Has median household income really stagnated in the United States?  If so, why?  Are the causes political or something deeper?  What are the important biases in how we are measuring national income and productivity and why do they matter for economic policy?  Are we getting enough value for all the extra money we are spending on the health care and education sectors?  What do some major right-wing and left-wing thinkers miss about this phenomenon?

How does all this relate to our recent financial crisis?

I dedicated this book to Michael Mandel and Peter Thiel, two major influences on some of the arguments.

Why did big government arise in the late 19th and early 20th centuries, what is its future, and why is science so important for macroeconomics?  How can we fix the current mess we are in?

Read (and buy) the whole thing.

Scott Sumner:

How great was Tyler Cowen’s marketing coup?  Well he forced a technophobe like me to actually learn how to use Kindle.  I wasn’t too happy about that, which makes me inclined to write a very negative review.  But that’s kind of hard to do credibly when I agree with the central proposition of the book; that technological progress (at least as traditionally measured) has slowed dramatically, and will continue to be disappointing for the foreseeable future.

In an earlier post I argued that my grandma’s generation (1890-1969) saw the biggest increase in living standards; most notably a longer lifespan (due to diet/sanitation/health care), indoor plumbing and electric lights.  Less important inventions included home appliances, cars and airplanes, and TVs.  From the horse and buggy era to the moon landing in one life.  And all I’ve seen is the home computer revolution.  Not much consolation for a technophobe like me.  I’m probably even more pessimistic than Tyler.

The parts of the book I liked best were those that discussed governance.  I had noticed that there was a correlation between cultures that are good at governance, and cultures that are good at running big corporations.    But Tyler added an interesting perspective, arguing that the technologies that facilitated the growth of big corporations also facilitated the growth of big government.  I don’t recall if he made this point, but I couldn’t help thinking that the neoliberal revolution, which led to some shrinkage in government size, was also associated with a move away from the big corporate conglomerates of the 1960s, towards smaller and more nimble businesses.

Tyler has a long list of complaints about the wasteful nature of our government/education/health care sectors, which he hinted is really just one big sector.  While reading this section I kept wondering when he was going to mention Singapore, which has constructed a fiscal regime ideally suited for the Great Stagnation.  When he finally did, on “Page” 830-37, he did so in an unexpected context, as an example of a society that reveres scientists and engineers.  He had just suggested that the most important thing we could do to overcome the stagnation was:

Raise the social status of scientists.

My initial reaction was skepticism.  First, how realistic is it to expect something like this to happen?  I suppose the counterargument is that every new idea seems unrealistic, until it actually occurs.  But even if it did, would it really speed up the rate of scientific progress?  My hunch is that if we doubled the number of people going into science, there would be very little acceleration in scientific progress.  First, because the best scientists (think Einstein) are already in science, driven by a love of the subject.  Second, with a reasonably comprehensive research regime, progress in finding a cure for cancer may require a certain set of interconnected discoveries in biochemistry that simply can’t be rushed by throwing more money and people at the problem.  Similarly, progress in info tech may play out at a pace dictated by Moore’s law.  Given Moore’s law, no amount of research could have produced a Kindle in 1983.  Could more scientists speed up Moore’s law?  Perhaps, I’m not qualified to say.  But that’s certainly not the impression I get from reading others talk about information technology.

Here’s another exhortation that caught my eye:

Be tolerant, and realize there are some pretty deep-seated reasons for all the political strife and all the hard feelings and all the polarization.

I couldn’t help thinking of Paul Krugman and Tyler Cowen, the two brightest stars of the economic blogosphere.  If only one of those two are able to have this sort of dispassionate take on policy strife, how likely are the rest of us mere mortals to be able keep a clear head and remain above the fray?  Still, it’s great advice.

Ryan Avent at Free Exchange at The Economist:

Mr Cowen’s book can be very briefly (too briefly) summarised as follows. The rich world faces two problems. The first is that a decline in innovation has reduced the growth rate of output and median incomes, making it hard for rich countries to meat obligations accepted when expectations were higher. The second is that a lot of recent innovation is occuring in places like the internet, where new products are cheap or free and create very few jobs.

Mr Sumner’s response is a good one. What Mr Cowen is essentially saying, he suggests, is that the actual price level is tumbling. Technology has created a lot of great things that are available for free, and so the price of a typical basket of household consumption is dropping like a rock. People used to spend a lot of money going to movies, buying books and records, making expensive long-distance phone calls, paying for word processing software, and so on. Now, a lot of that can be done at almost no cost. Prices are falling.

That has a couple of implications. It suggests that real incomes are actually rising, at least for those consuming the bulk of the free online content. And perhaps real incomes are too high, in some cases, for labour markets to clear. Given broader disinflation (understated because non-purchased goods aren’t included in price indexes) both prices and wages may need to adjust, but if they’re sticky, then they won’t. What’s needed is reinflation.

To a certain extent, Mr Cowen is concerned about society’s ability to pay off old obligations, and one reason society might struggle to do this is that new innovations deliver value through non-monetary transactions. But the value is still there, and that’s what should really matter for the paying-off of obligations. When you borrow, you’re offering to compensate the lender with more utility tomorrow for less utility today. Thanks to the internet, utility today is cheap, and that’s only a problem because the obligations we acquired yesterday were denominated in dollars. But we can print enough money to meet yesterday’s obligations. Indeed, we should, in order to offset the deflationary pressures from the cheap innovations.

Imagine a world in which technology has advanced to the point that robots can build robots that operate at basically no cost at basically no cost, such that people can have anything that want anytime for free; the only constraint on consumption is the time available. That would be a cashless economy, and as a result, debtors would be totally unable to pay creditors. But does that matter?

Paul Krugman:

Tyler Cowen argues that technological change since the early 1960s hasn’t been as transformative for ordinary peoples’ lives as the change that went before.

I agree. I wrote about that a long time ago, using the example of kitchens:

Better yet, think about how a typical middle-class family lives today compared with 40 years ago — and compare those changes with the progress that took place over the previous 40 years.

I happen to be an expert on some of those changes, because I live in a house with a late-50s-vintage kitchen, never remodelled. The nonself-defrosting refrigerator, and the gas range with its open pilot lights, are pretty depressing (anyone know a good contractor?) — but when all is said and done it is still a pretty functional kitchen. The 1957 owners didn’t have a microwave, and we have gone from black and white broadcasts of Sid Caesar to off-color humor on The Comedy Channel, but basically they lived pretty much the way we do. Now turn the clock back another 39 years, to 1918 — and you are in a world in which a horse-drawn wagon delivered blocks of ice to your icebox, a world not only without TV but without mass media of any kind (regularly scheduled radio entertainment began only in 1920). And of course back in 1918 nearly half of Americans still lived on farms, most without electricity and many without running water. By any reasonable standard, the change in how America lived between 1918 and 1957 was immensely greater than the change between 1957 and the present.

Now, you can overstate this case; medical innovations, in particular, have made a huge difference to some peoples’ lives, mine included (I have a form of arthritis that would have crippled me in the 1950s, and in fact almost did 20 years ago until it was properly diagnosed, but barely affects my life now thanks to modern anti-inflammatories.) But the general sense that the future isn’t what it used to be seems right.

David Leonhardt interviews Cowen at NYT

Derek Thompson at The Atlantic:

Tyler Cowen’s celebrated Kindle publication “The Great Stagnation” has received a lot of attention from the Web community. The New York Times David Leonhardt gets the author to sit for an e-interview on his e-book and asks a good first question: If our innovation motor is broken, what should we do know?

Cowen responds that we should double down on science…

The N.I.H. has done a very good job in promoting medical innovation and this is in large part because it allocates funds on a relatively meritocratic basis; Congress doesn’t control particular grants and on many important fronts the N.I.H. has autonomy. It is one reason why the United States is the world leader in medical research and development and I would expand its funding, provided it retains this autonomy. Basic research is often what economists call a “public good” and it offers economic and health returns for many years to come.

… and get realistic about clean energy.

“Clean energy” is a very important issue, for reasons of climate change, but it won’t be a job creator in a useful sense. In terms of energy production, fossil fuels are quite powerful. With green energy, at this point, we are simply looking to break even, namely to receive some of our current power but without the negative environmental consequences which accrue from carbon. That’s a worthy goal, but we shouldn’t start thinking about green energy as speeding up economic growth or creating jobs. It’s more like a necessary burden we will have to bear and the fact that these costs lie in front of us – from both the climate change and from the technological adjustments — is a sobering thought.

These are smart thoughts from a very smart guy. But let’s think about NIH funding from a jobs perspective. If the government increases science funding and this results in more pharmaceutical drugs coming online, that’s a great thing for the pharmaceutical industry. But new drugs, like any new technology, can be disruptive. For example, a drug to ease the side-effects of end-of-life diseases might replace the need for home health aides, which are projected to be one of the fastest growing jobs in the country for low-skilled workers. That’s not a reason not to develop a totally useful rug! But it throws a wrench into a claim (one that I’ve often made, too) that innovations in biosciences are pure job-creators.

Ezra Klein:

Cowen’s characterization of plumbing, fossil fuels, public education systems, penicillin and so forth as “low-hanging fruit” bugs me a bit. It took human beings quite a while to figure all that out. But Cowen is right to say that once discovered, those innovations produced extremely high returns. From the economy’s perspective, the difference between having cars and not having cars is a lot larger than the difference between having cars and having slightly better cars. A 1992 Honda Accord and a 2010 Honda Accord aren’t the same, but they’re pretty close.

The obvious rejoinder to this is, “What about the internet?” The problem, as Cowen points out, is that the Internet is not yet employing many people or creating much growth. We needed a lot of people to build cars. We don’t need many people to program Facebook. It’s possible, Cowen thinks, that the Internet is just a different type of innovation, at least so far as its ripples in the labor market are concerned. “We have a collective historical memory that technological progress brings a big and predictable stream of revenue growth across most of the economy,” he writes. “When it comes to the web, those assumptions are turning out to be wrong or misleading. The revenue-intensive sector of our economy have been slowing down and the beg technological gains are coming in revenue-deficient sectors.”

Maybe the Internet just needs some time to come into its growth-accelerating own. Or maybe the Internet is going to be an odd innovation in that its gains to human knowledge and enjoyment and well-being will serve to demonstrate that GDP and even median wage growth are insufficient proxies for living standards. Either way, we’re still left with a problem: Stagnant wages are a bad thing even if Wikipedia is a big deal.

And it’s not just the Internet. Even when we’re growing, things look bad. The sectors that are expanding fastest are dysfunctional. We spend a lot of money on education and health care, but seem to be getting less and less back. The public sector is getting bigger, but it’s not at all clear it’s getting better. For much of the last few decades, the financial sector was was generating amazing returns — but that turned out to be a particularly damaging scam. And economic malaise is polarizing our politics, leaving us less able to respond to these problems in an effective or intelligent way.

Kevin Drum:

Tyler makes a bunch of other arguments in “The Great Stagnation” too, some more persuasive than others. Like some other critics, I’m not sure why he uses median wage growth as a proxy for economic growth. It’s important, but it’s just not the same thing. Besides, median wage growth in the United States slowed very suddenly in 1973, and it’s really not plausible that our supply of low hanging fruit just suddenly dropped by half over the space of a few years. I also had a lot of problems with his arguments about whether GDP generated by government, education, and healthcare is as “real” as other GDP. For example, he suggests that as government grows, its consumption is less efficient, but that’s as true of the private sector as it is of the public sector. A dollar of GDP spent on an apple is surely more “real” than a dollar spent on a pet rock, but there’s simply no way to judge that. So we just call a dollar a dollar, and figure that people are able to decide for themselves whether they’re getting the same utility from one dollar as they do from the next.

The healthcare front is harder to judge. I agree with Tyler that we waste a lot of money on healthcare, but at the same time, I think a lot of people seriously underrate the value of modern improvements in healthcare. It’s not just vaccines, antibiotics, sterilization and anesthesia. Hip replacements really, truly improve your life quality, far more than a better car does. Ditto for antidepressants, blood pressure meds, cancer treatments, arthritis medication, and much more. The fact that we waste lots of money on useless end-of-life treatments doesn’t make this other stuff any less real.

To summarize, then: I agree that the pace of fundamental technological improvements has slowed, and I agree with Tyler’s basic point that this is likely to usher in an era of slower economic growth in advanced countries. At the same time, improvements in managerial and organizational efficiency thanks to computerization shouldn’t be underestimated. Neither should the fact that other countries still have quantum leaps in education to make, and that’s going to help us, not just the countries trying to catch up to us. After all, an invention is an invention, no matter where it comes from. And finally, try to keep an even keel about healthcare. It’s easy to point out its inefficiencies, but it’s also easy to miss its advances if they happen to be in areas that don’t affect you personally.

David Brooks at NYT

Cowen and Matthew Yglesias on Bloggingheads

We All Get Punched In The Gut

Chart from Calculated Risk

Calculated Risk:

From the BLS:

The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today.

David Leonhardt at NYT:

Overall employment growth fell to 39,000, from 172,000. Private-sector hiring fell to 50,000 — which isn’t nearly enough to keep up with normal population — from more than 100,000 in each of the previous four months. Average hourly pay rose just 1 cent, to $22.75, the smallest gain in five months. The average length of the workweek remained stuck at 34.3 hours.

What’s causing this? No one knows, to be honest. But the most likely suspect is the same one that has been hurting the economy for much of this year. Financial crises do terrible damage, and the economic aftershocks from them tend to last longer and be worse than people initially expect.

Steve Benen:

I realize that economists tend to emphasize that it’s unwise to overreact to any one report, but this one feels like a punch to the gut. For all the indications that the job market was starting to pick up a little steam, this morning’s jobs report suggests the exact opposite.

Ryan Avent at Free Exchange at The Economist:

There is little to be happy about in this report, in other words. But there are some indications that the November numbers may be an aberration. September’s job losses were revised down to 24,000 in this report, while October’s job gains were revised upward, from 151,000 to 172,000. Through November, weekly data on initial jobless claims showed significant improvement. And of course, many other indicators have been flashing positive signs in recent weeks.

It’s likely, then, that the November figures will be revised up in future months to show a better performance more in keeping with broader trends. And it’s important to remember that monthly data are noisy. America’s labour markets have yet to generate job growth sufficient to bring down the unemployment rate. But the pace of recovery has been improving. There is good reason to suspect that when all is said and done this report will appear as a blip marring a strengthening upward employment trend. All the same, policymakers in Washington weighing whether to extend unemployment benefits and tax cuts should heed the obvious weakness in labour markets. They can and should make sure that November’s number remains an anomaly.

Don Suber:

Unemployment rose to 9.8% in November — or a full two points higher than what Barack Obama said it would be if we had done nothing.

One year ago, unemployment was at 10%, which proves Obamanomics has stalled the economy, as there was a net gain of only 39,000 jobs this November.

President Obama can no longer blame President Bush for this mess. Obama has spent record amounts of money and increased the size of the federal government from being 20% of the economy under Bush to now 25% of the economy as he increased the budget from $2.8 trillion a year to $4 trillion.

He has failed.

He is a failure, America.

Nice guy, but a failure none the less.

But he did ban Four Loko.

Philip Klein at the American Spectator

John Cole:

Just a reminder. The Republicans, energized over their November victories, went to Washington and immediately went about securing tax cuts for millionaires and billionaires as priority #1, all while blocking any attempts at job growth legislation and continuation of unemployment benefits. Meanwhile, this is happening:

[…]

A competent political party would be able to make the Republicans pay a political price for this and be forced to make very uncomfortable votes. Does anyone know where I can find a competent political party?

Holiday, Celebrate!

Lori Montgomery and Anne Kornblut at WaPo:

With just two months until the November elections, the White House is seriously weighing a package of business tax breaks – potentially worth hundreds of billions of dollars – to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

Administration officials have struggled to develop new economic policies and an effective message to blunt expected Republican gains in Congress and defuse complaints from Democrats that President Obama is fumbling the issue most important to voters. Following Obama’s vacation and focus on foreign policy in recent weeks, White House advisers have arranged a series of economic events for the president next week, including two trips to swing states and a news conference.

David Leonhardt at NYT:

It’s time to start talking about a tax cut.

The economy is struggling mightily. Some 15 million people remain unemployed. The Federal Reserve has been slow to act and still is not doing much. The Senate has been unable to find the 60 votes needed to pass anything but minor bills.

The best hope for a short-term economic plan that can win bipartisan support is a tax cut — and not the permanent extension of George W. Bush’s tax cuts, which have been dominating the debate lately. Such an extension is unlikely to win many Democratic votes. Republicans, meanwhile, are unlikely to support more spending, like the national infrastructure project President Obama has been mentioning.

A well-devised tax cut could be different. Cutting taxes has been the heart of the Republican economic program for 30 years, and last year’s stimulus bill showed that Mr. Obama was open to tax cuts.

The question, then, is what kind of cut can put people back to work quickly.

The last 30 years offer some pretty good answers. For one thing, a permanent reduction in tax rates focused on the affluent — along the lines of those 2001 Bush tax cuts — does little to lift growth in the short term. An across-the-board, one-time cut — like the one that Mr. Bush signed in 2008 or that Mr. Obama signed last year — does more.

But the most effective tax cut for putting people back to work quickly is one that businesses and households get only if they spend money. Last year’s cash-for-clunkers program was an example. So was a recent bipartisan tax credit for businesses that hired workers who had been unemployed for months. Perhaps the broadest example is a temporary cut in the payroll tax for businesses, which reduces the cost of employing people.

Tyler Cowen

Joseph Lawler at The American Spectator:

The Post suggests that the bill would be introduced before the midterm elections. The article quotes William Galston of the Brookings Institution explaining that the timing proves that the decision wouldn’t be motivated by fears about the midterms: “Substantively, there is nothing they could do between now and Election Day that would have any measurable effect on the economy. Nothing.”

If the idea is to make it easier for companies to hire new workers in an attempt to revive the weak labor market, a payroll tax cut would be a good first step. The administration, however, is also toying with a few other policies that would undermine the effect of the payroll tax cut. For example, if the Democrats do allow the Bush tax cuts for top individual earners to expire, the burden will fall onto small business owners — counteracting the effect of the payroll tax cuts mere months after they’re implemented.

Mary Katherine Ham at The Weekly Standard

Jennifer Rubin at Commentary:

When all else fails, Democrats throw in the towel on their loopy economic policies and resort to tax cuts — just like the Republicans wanted in February 2009. We learn:

With just two months until the November elections, the White House is seriously weighing a package of business tax breaks — potentially worth hundreds of billions of dollars — to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

A couple of problems with that. First, it won’t improve the economy before the election. The voice of sanity for the Democrats, William Galston, says: “Substantively, there is nothing they could do between now and Election Day that would have any measurable effect on the economy. Nothing.” Second, this renders the Obama economy policy entirely incoherent. If the economy is worsening and they admit tax cuts are good, why eliminate the Bush tax cuts? What sense does it make to give with one hand and take away with the other?

We’ll see what the Democrats come up with. As Milton Freidman advised, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” But conservatives should insist that in addition to any tax cuts Obama proposes, the Bush tax cuts must be retained. Otherwise, we are merely treading water.

Steve Benen:

Given the mixed signals of late, it’s worth noting that Politico has a report similar to the Post‘s, explaining that administration officials are “mulling a raft of emergency fixes to stimulate the economy before the midterms, including an extension of the research and development tax credit and new infrastructure spending.”

It’s hard to evaluate any of these ideas without more details, and for that matter, no matter what the White House recommends, Congress’ inability to function makes progress unlikely for the foreseeable future.

That said, it’s at least somewhat encouraging to see a shift away from “everything’s on track, so just be patient.” Moreover, there’s obviously real political salience to even just having the debate — with two months before the midterms, it’s worth having the two parties fight over how to help the economy grow. If Republicans intend to kill every proposal the White House offers, that should matter to voters, too.

The Post‘s report concluded that President Obama “could roll out additional measures as soon as next week.” Stay tuned.

Megan McArdle:

Thoughts:

1)  Practically, this isn’t going to do anything before the mid-terms.  These sorts of changes take time to roll out, and there’s no way they could get anything into effect soon enough to make an actual difference in peoples’ lives.

2)  Whether you think this works as a campaign tactic depends on whether you think people will think that it is going to work.  On that question, I have no idea.  People do love cash in their pockets, however.

3)  Politically, this has one major drawback:  it’s going to put huge holes in the Social Security and Medicare trust funds.  Since I think those trust funds are meaningless accounting devices, I don’t think this has any practical relevance.  But as you will be able to see in my comment section about twenty minutes after I hit “post,” people have a very deep emotional attachment to the idea of the trust funds, which politicians cannot easily trifle with.

4)  Practically, I think the actual impact will be minimal, at least on employment.  It might help people and companies to rebuild their balance sheets (or let struggling companies ride things out a while longer).  But the main constraint on business hiring is uncertainty, and a payroll tax isn’t going to change that.  Obviously, some workers will get hired at the margin–but if your labor is so marginal that you need a payroll tax holiday to make it economical, then I’d expect that as soon as the payroll tax holiday is over, you’ll probably be fired.  Hence, even if you get the job, you’re going to want to save as much of your wages as possible, blunting the multiplier effect we hope to get out of stimulus.

Arnold Kling:

Really? I have a proposal. Suppose the holiday costs the trust fund $400 billion. Just transfer that $400 billion from the general budget to the trust fund.

In fact, we could immediately put $100 trillion gazillion dollars in the trust funds from the general budget, and then they would have enough money to pay Social Security forever. Supposedly.

The trust fund is a measure of what we are promising to pay future Social Security recipients. To me, it is nothing more than that. But what is going to fund Social Security down the road is not the promises that we pour into it today. It is the taxes that people will pay in the future.

I have tried to explain Social Security for a long time. See here, for example. But Megan is probably right. I honestly thought that among trained economists it was understood that the trust fund has no real significance. I thought that anyone who went to a respectable graduate school learned the overlapping generations model, which sometimes gets taught as a model of money but is most evidently a model of Social Security. However, Paul Krugman at least pretends to act as if he never learned that.

Atrios:

There’s something about working in politics which starts making people think everything is about perception rather than reality. I think a full payroll tax holiday would be fine as long as it wasn’t yet another excuse to try to destroy Social Security, but an employer only one would be truly awful on substance, impact, and message. More help for the overlords, no help for you!

But apparently the geniuses in charge think the problem is that “stimulus” and “bailout” have become scary bad words. The problem is that the economy sucks and people don’t have any money.

The Washington Monthly Goes To College

Daniel DeVise at WaPo:

Washington Monthly, a magazine with unusually robust higher education coverage, today released its own attempt at a ranking of colleges and universities.

The magazine is a relatively new entrant to the rankings field, which has become very crowded in recent years.

The trick is to offer something different than U.S. News & World Report, whose rankings stress reputation, graduation rates, test scores and other measures that produce a fairly predictable list of well-endowed and prestigious universities. At its genesis in the 1980s, a simple formula that yielded a ranking with Harvard, Princeton and Yale at the top made all the sense in the world, a gratifying affirmation of common wisdom. Three decades later, the approach is a magnet for criticism: the rankings are seen by some as telling college customers something they already know.

Washington Monthly rates and ranks colleges “based on their contribution to the public good,” and in three categories: “Social Mobility (recruiting and graduating low-income students), Research (producing cutting-edge scholarship and PhDs), and Service (encouraging students to give something back to their country).”

(Whether those criteria ought to be the basis for choosing a college is a topic for another day.)

The ranking yields unusual results. Public universities fare well, because of their strength in research and fairly high marks for serving low-income students. Three University of California campuses, in San Diego (!), Berkeley and Los Angeles, rank 1-2-3 among national universities by the WaMo formula. Harvard ranks ninth, Yale 33rd.

The College of William and Mary ranks a very respectable 10th on that list, partly because of its second-in-the-nation ranking for producing Peace Corps volunteers. (Who knew?) Georgetown ranks 19th.

David Moltz at Inside Higher Ed:

The Washington Monthly has yet again irked some educators, as it did three years ago, by ranking what it calls “America’s Best Community Colleges” using openly available student engagement survey data.

Using benchmarking data from the Community College Survey of Student Engagement (CCSSE) and four-year federal graduation rates in an equation of its own making, the magazine attempts to rank the top 50 community colleges in the country in its latest issue. Though the periodical’s editors say they only hope to highlight “what works and what doesn’t” at these institutions by ranking them, CCSSE officials have denounced the use of their data in this way and argue it may do more harm than good.

Community colleges are often underrecognized,” said Kevin Carey, author of the magazine’s community college rankings and policy director at Washington-based think tank Education Sector. “But there’s been a lot of attention paid to them, thanks to the president’s recent effort [with the American Graduation Initiative]. Since he supports investing and improving community colleges, we felt like it was a good time to ask, ‘What do good community colleges look like?’ If we’re going to spend a lot of money, let’s see what reflects best practices out there.”

Carey admitted that such a ranking of community colleges would not be possible without data from CCSSE, a survey run by the University of Texas at Austin that goes out to students at around 650 two-year institutions and uses the results to judge the colleges on broad categories such as “active and collaborative learning,” “student effort,” “academic challenge,” “student-faculty interaction” and “support for learners.” Though every participating college’s survey data are made public, institutional officials are encouraged to compare their benchmark scores only to national averages and those of large peer groups, such as institutions of similar size or in a similar geographic area.

Despite warnings from CCSSE officials that its data sets were never meant to be used to generate college rankings, Carey defended the decisions to do so and to have CCSSE data count for 85 percent of a college’s ranking.

“We always equate admissions selectivity with quality,” Carey said. “Well, all community colleges have the same admissions policy, but they aren’t always as good as one another. Part of this was to find a way to talk about excellence in the sector. We’re publicizing information about best practices. We’re talking about it here, and this is an interesting and long-overdue conversation that we need to have at the federal level.”

David Leonhardt at NYT:

The college guide is part of Washington Monthly’s continuing effort to build better college rankings. The biggest flaw with the famous U.S. News & World Report ranking is that it largely rewards colleges that enroll highly qualified (and, typically, affluent) students, regardless of how much those students learn while on campus. Washington Monthly instead tries reward those colleges that do a good job educating students.

The methodology is far from perfect, because the data needed to build a really good ranking doesn’t exist. But I find Washington Monthly’s approach more interesting than virtually any other ranking out there. It relies in significant part on a comparison between a college’s actual graduation rate and the graduation rate that would be predicted by the students’ economic backgrounds. The No. 1 university this year is the University of California, San Diego, and the No. 1 liberal arts college is Morehouse, in Georgia.

The magazine has also identified the 200 colleges with the worst record of graduating students. Mr. Glastris writes:

These colleges make up 15 percent of the total and disproportionately serve working-class and minority students. They are akin to the 15 percent of high schools Barack Obama and other would-be reformers have dubbed “dropout factories” for having scandalously low graduation rates — on average about 50 percent. But the average graduation rate at the 200 “college dropout factories” is 26 percent. America’s worst colleges, in other words, are twice as bad as its worst high schools.

This is an appalling waste of human talent. The students who go to these colleges are, by and large, strivers. They are the ones who made it out of the bad high schools. When they then try to improve their lives by seeking a college degree, they are steered — via relative tuition costs and geographic convenience — toward precisely those institutions where they are most likely to fail. Lest you think the fault lies not with the colleges but with the students’ lack of academic preparedness, consider this: enroll those same students in different colleges and their chances of graduating double or even triple.

One of the highest dropout rates in the nation belongs to Chicago State University, as Ben Miller and Phuong Ly explain in one article.

Ben Miller and Phuong Ly at The Washington Monthly:

It was money—or the lack of it—that determined where Nestor Curiel chose to go to college. The third of six children in an immigrant Mexican family, Nestor grew up in Blue Island, a gritty working-class suburb near Chicago’s South Side. His father worked, and still works, two jobs—machine operator and restaurant dishwasher—and his mother makes and sells crocheted gifts. Nestor, a polite twenty-one-year-old with black-rimmed glasses, graduated from Eisenhower High School with a 3.6 GPA and dreams of becoming an engineer. (As a child he was inspired by Discovery Channel documentaries about engineering marvels, and he also enjoyed helping his dad repair automobiles on weekends.) He particularly wanted to help his parents pay off the mortgage on their weathered gray house, which is two doors down from a corner store with a large “WE ACCEPT WIC” sign in the window.

Nestor was an above-average high school student who generally made the honors list, and he was diligent in his non-school hours as well, holding down a part-time job as a busboy and line cook at the restaurant where his father worked. His ACT score was 18, equivalent to about 870 on the SAT, which wasn’t high enough to gain him admission to a selective college. (This was typical for his school—41 percent Hispanic, 38 percent black—where only 31 percent of kids meet or exceed standards on state tests, versus 76 percent for the state.) And, apart from a career fair, Eisenhower High School didn’t provide much in the way of college guidance. One time, a guest speaker had urged students to expand their horizons and apply to schools out of state, but Nestor worried about going somewhere unfamiliar. Also, if he could live at home, he would save money.

Ultimately, Nestor wound up narrowing his choices down to two nearby schools: Purdue University Calumet and Chicago State University. Each seemed to have advantages and disadvantages, but Chicago State offered one extra perk: $1,000 in scholarship money if Nestor enrolled in its pre-engineering program. That sealed the deal. The stipend, combined with federal and state grants and a private scholarship from Chicago’s George M. Pullman Educational Foundation, meant that Nestor could get a college education with most of his expenses paid.

With its tree-lined campus and gleaming new steel and glass convocation center, Chicago State certainly looked impressive. But within his first month there, Nestor wanted to leave. Advisers in the engineering department seemed clueless about guiding him to the right courses, insisting that if he wanted to take programming he first needed to enroll in a computer class that showed students how to turn on a monitor and operate a mouse. (Nestor required no such training.) The library boasted a robot that retrieved books, but Nestor would have preferred that it simply stay open past eight p.m., since class sometimes ended at nine p.m. or later, leaving him without a useful place to study or do research before going home. Trash littered the classrooms and grounds, and during class many of the students would simply carry on conversations among themselves and ignore the instructors—or even talk back to them. Nestor was appalled. “It was like high school, but I was paying for it,” he says.

Several students he knew dropped out, but Nestor stayed. “I wasn’t going to give them my money and let them kick me out,” he says. For the next two years, Nestor encountered a ceaseless array of impediments to getting through school. When he wanted to get a tutor, his advisers couldn’t offer any advice about who might be available. When he visited the financial aid office to clear up what seemed like a simple clerical error depriving him of a state grant, the office told him—untruthfully, as it turned out—that getting such grant money would disqualify him from getting any scholarship money from the Pullman Foundation. (By the time the situation was straightened out, the first semester of his sophomore year was nearly over, and the financial office gave Nestor only $780 of what was supposed to be a $1,200 grant, telling him that it couldn’t give him money for a semester that was ending. “It kind of felt like they were stealing from me,” he says.) Only with the help of two dedicated instructors—Shuming Zheng, an engineering professor, and Thomas Kuhn, a physics lecturer—was Nestor able to finish his pre-engineering credits as planned. Fortunately, this allowed him to transfer to a superior school, the University of Illinois at Chicago, with a $5,000 scholarship.

[…]

Nestor’s experience of educational incompetence at the college level isn’t just a Chicago phenomenon. Nationwide, low-income minority students are disproportionately steered toward colleges not where they’re most likely to succeed, but where they’re most likely to fail.

School reformers, including President Obama, often talk about high school “dropout factories.” These are the roughly 2,000 public high schools, about 15 percent of the total, with the nation’s highest dropout rates. The average student at these schools has about a fifty-fifty chance of graduating, according to the Everyone Graduates Center at Johns Hopkins University. But the term “dropout factory” is also applicable to colleges. The Washington Monthly and Education Sector, an independent think tank, looked at the 15 percent of colleges and universities with the worst graduation records—about 200 schools in all—and found that the graduation rate at these schools is 26 percent. (See the table at left for a listing of the fifty colleges and universities with the worst graduation rates.) America’s “college dropout factories,” in other words, are twice as bad at graduating their students as the worst high schools are at graduating theirs.

Nearly everyone considers it scandalous when poor kids are shunted into lousy high schools with low graduation rates, and we have no problem naming and shaming those schools. Bad primary and secondary schools are frequently the subject of front-page newspaper investigations and the backdrop for speeches by reformist mayors and school district chiefs. But bad colleges are spared such scrutiny. This indifference is inexcusable now that a postsecondary credential has become virtually indispensable to anyone hoping to lead a middle-class life. If we want better outcomes in higher education, we need to hold dropout factories like Chicago State accountable in the same way the Obama administration proposes to hold underperforming high schools accountable: transform them—or shut them down.

When one examines the schools on the list of college dropout factories—the worst being Southern University at New Orleans, with a 5 percent graduation rate—one thing that stands out is their diversity. Geographically, they are all over the map. From New York to Florida to Alaska—few regions of the United States are spared a local dropout factory. Some, like Chicago State, the University of the District of Columbia, and Houston’s Texas Southern University, are located in big cities; others, like Sul Ross State University and Heritage University, are in small towns and rural areas. Nor is there a bias toward public or private institutions: it’s split fairly evenly, although the public colleges, which are generally bigger, tend to account for greater numbers of dropouts. Some are heavily weighted toward certain minority groups—historically black colleges, for instance, and tribal colleges. Others, like Idaho State, are 80 percent white and do just as poorly. Some of the schools are religious—like Jarvis Christian College, with a 90 percent attrition rate. Most are just seemingly ordinary schools that mostly fly beneath the radar of the national press.

But there are also similarities. As a percentage of their student bodies, these college dropout factories enroll twice as many part-time students, nearly twice as many from low-income families, and around 50 percent more blacks and Hispanics than the average American college or university. They mainly serve local communities, admit most of their applicants, and have much less money than colleges that are higher in prestige. Most upper-middle-class parents would never send their kids to these schools—nor have they generally even heard of them. Not surprisingly, the worst of the dropout factories are allowed to roll along in dysfunction, year after year.

Ben Miller at The Quick and The Ed:

In an article for the Washington Monthly’s annual College Guide, my co-author, Phuong Ly, and I show how legions of low-income and minority students find themselves steered precisely toward the colleges where they’re most likely to fail–these higher education dropout factories. These schools are enormous wastes of human talent, a fact that’s even sadder when you consider that they are most often the low-income students who beat the odds to graduate from lousy high schools.

It’s easy to shift some of the blame for this problem to the students. But that would be a mistake–data show that similarly talented individuals who go elsewhere have a much better chance of succeeding. An institution with a graduation rate of 13 percent, 19 percent, 25 percent, is doing a service to no one and it’s time to seriously think about reforming or even maybe shutting down some of these dropout factories.

To read more about Nestor, see the names of the 50 worst dropout factories, and learn more about what can be done to stop places like Chicago State, go ahead and read the whole thing.

Daniel Luzer at The Washington Monthly:

Welcome to today’s increasingly elite higher education system, where lavish campuses, high tuition, and huge undergraduate debt loads have become the norm. In dogged competition for affluent, high-scoring students, today’s second-tier colleges aim to achieve higher prestige by aping the superficial characteristics of America’s traditionally elite schools. Indeed, there are few alternatives for ambitious administrators. “If you want to rise, you try to do the things that make you look like Harvard,” says David Labaree, a professor of education at Stanford University. “It’s hard to take a different path.”

To be sure, there was more to GW’s transformation than just a tuition hike and a campus makeover. The administration also engaged in an aggressive marketing campaign, smartly selling GW’s location in the heart of the nation’s capital as a precious asset. (A full-page advertisement in Foreign Affairs features a map of downtown Washington with GW highlighted. Also lit up are the IMF, the World Bank, the White House, the Treasury Department, the Federal Reserve Bank, the State Department, and the Kennedy Center. “Welcome to the neighborhood,” it says.)

[…]

Many GW students come from families that can’t afford high tuition. As a result, students borrow—a lot. The average borrower leaves Foggy Bottom with $31,299 worth of debt, among the highest levels in the country. That’s thousands more than the average at nearby Georgetown. Some students, like Greg Godfrey, graduate owing $100,000 or more. The son of a Cleveland single mother, Godfrey spent years living hand to mouth after graduating with a business degree in 2006, and still owes more than $75,000. “You just don’t know what you’re doing when you sign up for this stuff,” Godfrey says.

Nor is it clear that Godfrey and his fellow students got a great long-term investment in return. According to People Capital, an organization that tracks earning potential, a typical GW student (political science major, with average GW SAT scores and a 3.0 college GPA) would have almost exactly the same career earning potential if he attended significantly lower-debt schools like the University of Virginia or the University of Maryland.

If GW puts many of its students in a financially precarious situation, it’s worth noting that the school itself shares much the same plight. Like a recent graduate with a crushing loan, GW operates on the fiscal equivalent of paycheck to paycheck, covering nearly 80 percent of annual expenses from tuition revenue—much higher than the 40 percent average among private national research universities. The university generates little revenue from its endowment, and prospects of improving the situation are bleak: only 11 percent of alumni donate, compared to the average among similar universities in the 50 percent range.

Godfrey, for one, doesn’t plan to donate to his alma mater anytime soon. While he’s now making a decent salary—he recently obtained a job at World Wrestling Entertainment working on digital media products—he still pays some $700 a month to service the loans he accumulated studying at GW. “I mean, maybe if I made like $3 million a year I’d give something to GW,” Godfrey jokes.

Meanwhile, despite the high tuition, GW’s assault on the upper reaches of higher education status has stalled: the university made it all the way to fifty-first place on the U.S. News list in 2004, just short of tier one, but has fallen back a few spots since. GW seems to have found the upper limits of arriviste institution building in higher education. Other striving campuses, including Boston University, Drexel, and Northeastern, have ended up in similar circumstances. The wrappings have become fancier than ever, but the product inside tastes pretty much the same.

The GW institutional model—embracing high tuition, excessive construction projects, and massive undergraduate debt—has become the dominant one in higher education, and every university president seems to want to be Stephen Joel Trachtenberg. American University, for instance, another second-tier school just four and a half miles from GW, does exactly the same things GW does, only more so. The average borrower leaves American about $41,000 in debt. Some 84 percent of American’s operating budget is funded by undergraduate tuition. A whole host of second-tier national universities operate in the same manner: they spend on the things that U.S. News measures, and they pay for them with practices that U.S. News doesn’t care about, like student loans.

Will at The League:

I think there are two things at work here. As the authors note, it’s extremely difficult for rising high school seniors to make fine grain distinctions between elite universities. Fancy buildings and impressive-looking architecture are undoubtedly useful tools for wooing would-be undergrads.

But I also think that this is a consequence of students viewing college as something to be experienced rather than the more traditional, achievement-oriented process. Commentators who take on the “college as a life experience” approach to higher education tend to complain about partying, sports culture, and Greek life. And fair enough – none of these activities are really integral to the core educational mission of colleges and universities. But the highbrow equivalent of tailgating and keg stands is going to a college that prizes impressive facilities and mindless credentialism over academics, which is exactly the demographic GW  seems to be after. Would GW’s prestige-driven strategy work without a pool of students (and parents) eager to attend an institution whose core appeal consists of networking opportunities and squash (“A GW athletic director explained to the Washington Post that the whole point of the GW squash program was to attract students who wanted to attend an Ivy League college and couldn’t get in.”)? I think not, which is why the problems of higher education are more deeply-rooted than a few cynical administrators.

Reihan Salam:

Now, Luzer is doing middle-class parents a service by puncturing some of the pretensions that surround a university like GW. Yet given the growth in the number of upper-middle-class households, it’s hardly surprising that we’d see positional competition in this space. Of course a handful of enterprising schools would try to increase their prestige and engage in high-priced empire-building.

What’s more depressing, as Luzer notes, are the heavy debt loads taken on by students from middle and working class households:

Many GW students come from families that can’t afford high tuition. As a result, students borrow—a lot. The average borrower leaves Foggy Bottom with $31,299 worth of debt, among the highest levels in the country. That’s thousands more than the average at nearby Georgetown. Some students, like Greg Godfrey, graduate owing $100,000 or more. The son of a Cleveland single mother, Godfrey spent years living hand to mouth after graduating with a business degree in 2006, and still owes more than $75,000. “You just don’t know what you’re doing when you sign up for this stuff,” Godfrey says.

I still wonder if we should fret about the GWs of the world. After acknowledging that the quality of a GW education might one day catch up to the school’s ambitions, Luzer follows with the most biting line of the piece:

But it seems just as likely that GW could turn out to be one more overleveraged artifact of our gilded age.

Ouch. And the conclusion also packs a punch:

But above all, GW seems vulnerable to a potential change in the way we thinkabout higher education. What if we actually started measuring how much students learn at their colleges and universities? How would that change the competition among institutions? Would the schools with the blue-chip price tags and high average debt loads fall from the top ranks? Would it spell an end to the era in which a forbidding set of entrance standards and a few stone facades are enough to tell us that a school is doing a great job? Let’s hope so. It would be great if moreuniversities competed to be excellent. What we have now is schools that spend a lot of money—students’ money, taxpayers’ money—merely to look that way.

The future Luzer outlines is obviously appealing. The thought that kept crossing my mind while reading the piece was that our tax dollars massively subsidize Trachtenberg’s empire-building, and that doesn’t seem like a very sound way to distribute what is essentially a large public investment.

Today’s Color On Our Color-Coded Economy Chart: Silver

David Leonhardt at NYT:

For many of these long-term unemployed, the financial and psychological damage will last for years. For most other workers, however, the situation has had a perverse, and mostly overlooked, silver lining.

Unemployment has been concentrated among a surprisingly small number of people, given how deep the recession has been. The nation’s pool of jobless workers has not been constantly changing. Instead, it’s been relatively stable — mostly because the hiring rate of new workers plunged in 2008 and still has not recovered. The drop in hiring has actually been steeper than the rise in layoffs.

Compare the current slump with that of the early 1980s, which was similar in severity. Over the course of 1980, 18.1 percent of the labor force was unemployed at some point. In 2008, the first year of this slump, only 13.2 percent was, according to the Labor Department’s most up-to-date data. That number surely rose in 2009, but it is unlikely to have come close to the 1982 peak of 22 percent.

If anything, the slowdown of the recovery in the last few months has made the recession even more concentrated. It has put off the day when the job market will be strong enough to re-employ many of the long-term jobless. But inflation has fallen to zero, which helps the purchasing power of everyone fortunate enough to have a job.

Given that the economy seems to have entered this new phase — a new slog — I wanted to use this week’s column to sketch an updated portrait of the economy. The highlights follow. More detailed information is posted on the Economix blog.

Heather Horn at The Atlantic round-up

Felix Salmon:

David Leonhardt’s latest column is full of interesting employment datapoints. Among them:

• In 2008, only 13.2% of the labor force was unemployed at some point. That compares to 18.1% in 1980, and 22% in 1982.
• Real wages, which normally fall during recessions, have risen in this one. Even nominal wages are up.
• The mancession is over: “male employment has risen by almost one million this year, while female employment has fallen by 300,000″.

The overriding impression is of most Americans actually doing OK, with an unemployable underclass bearing the brunt of the recession. Maybe we really are all middle class now: there’s the unemployed at the bottom of the pile, and the plutocratic elite at the top, with the overwhelming majority sitting in between, doing OK but hardly great.

The problem is that persistent unemployment at or around 10% is unacceptable in the U.S., especially with the social safety net being much weaker here than it is in Europe. Leonhardt is right that Euro-style safety nets aren’t particularly innovative, but they do at least keep people housed and clothed and fed and living outside poverty — reasonable expectations for anybody to have, I think, in the richest country in the world.

Andrew Sullivan:

I am struck by two things. The first is a question of why the Democrats are under so much electoral pressure when so many people are doing fine in this economy, indeed enjoying hefty wage increases in an era of very low inflation. Of course, I’m not arguing for selfishness, but it’s odd to me empirically that so many are complaining when such a discrete and relatively small section of the country is in such economic pain. People are pretty good at ignoring the plight of others in assessing their own situation. Have the employed seen such a boost in their living standards since the 1990s?

The second thing that strikes me is the comparison with the war. Just as in the economy, a relatively small and socially segregated segment of America bears the real burden – of their loved ones facing and meeting death and injury day after day. Why do we seem more indifferent to them than to the long-term unemployed?

What allows us to compartmentalize in some areas and not in others? Or will, in fact, the popular discontent with the economy fail to materialize as profoundly as we expect in the elections ahead? And will the resistance to the wars begin to rise?

Tyler Cowen:

Those facts, in a nutshell, are why I am not AD-obsessed when it comes to explaining the current economy.

Furthermore, I don’t buy the idea that so many of the unemployed are stupidly and stubbornly holding out for a higher wage than they can get, while at the same time they can be reemployed by a mere bit of money illusion.  There are so many blog posts written to the Fed, to Bernanke, etc. “Hey guys, goose up the money supply!  Bernanke, read your old writings!”

Yet I have seen not one such post to the unemployed: “Hey guys, lower your wage demands!  It’s good for you!  You’ll get a job and avoid the soul-sucking ravages of idleness.  It’s good for the country!  It’s good for Bernanke, you’ll get those regional Fed presidents off his back!  Why not?  The best you can hope for is to get tricked by money illusion anyway!  Show up those elites and get to that equilibrium on your own!  Take control!” and so on.  If such posts would seem patently absurd, we should ask what that implies for our underlying theory of current unemployment.

I sooner think of these unemployed individuals as having gone down economic corridors which are no longer promising and not facing any easy adjustment to set things right again.  Furthermore I consider that portrait of their troubles to be more consistent with the general tenor of liberal, left-wing, and progressive thought, not to mention plain common sense.

Ryan Avent at Free Exchange at The Economist:

I understand the thinking behind Mr Leonhardt’s point. The most recent recession was fairly unusual in that the rate at which workers entered unemployment never got that high; instead, unemployment rates soared because the rate at which workers exited unemployment was unusually low. As a result, fewer workers have moved through unemployment than one might expect given the 10.1% peak rate, and the ones that did enter unemployment have remained without a job for an unusually long time. But there are two points to make about this. First, as Brad DeLong notes:

Unemployment in 1980 averaged 7.2%–and affected 18.1% of the labor force. Unemployment in 1982 averaged 9.7%–and affected 22% of the labor force Unemployment in 2008 averaged 5.8%–and affected 13.2% of the labor force. In those three cases the total number of those affected by unemployment at some time during the year was 2.3, 2.5, and 2.3 times the average unemployment rate.

In 2010 the unemployment rate will average 9.5% of the labor force, and 2.3 times that will be… 22% of the labor force.

Second, unemployment isn’t the only category of labour market suffering there is. U-6, which includes workers marginally attached to the workforce and employed part-time for economic reasons (that is, not by choice) peaked at 17.4%. Nearly one in five workers in or marginally attached to the labour force were underemployed as a result of the recession. Not captured in that statistic are the workers who faced across the board salary freezes or cuts in order to reduce firm layoffs. And as Mr DeLong notes, the rise of two-worker, two-income household means that a given level of unemployment affects a larger share of the country’s households. The number of people directly affected by under- or unemployment may not have constituted a majority, but it was probably close.

Meanwhile, those not directly affected may nonetheless be feeling the pain of recession. The severity of the downturn has meant a loss of opportunity around the country. Employed workers stay in jobs they hate because of the paucity of other openings, and households remain in cities they’d like to leave thanks to negative equity. As the mobility has fallen in association with the recession, workers have been less able to maximise the return to their skills or their own utility. Mr Leonhardt says that the employed have enjoyed real wage increases. That’s nice, but the improvements have been smaller than they should have been, and much smaller than workers likely anticipated five or ten years ago (or, say, back when they were deciding how much to invest in their own human capital).

If the “most America is doing ok” notion seems not to pass the smell test, it’s because it doesn’t reflect reality.

Dean Baker at the Center For Economic and Policy Research:

David Leonhardt tells readers that the Great Recession has had some silver linings for many workers. High on his list is continued wage growth. This is misleading. All the real wage growth in this downturn occurred in the months of November and December of 2008. This was due to a plunge in the price of oil and other commodities. Since December of 2008 real wages have stagnated.

The wage growth in those two months also followed 6 years of wage stagnation. Essentially, nominal wage growth was eaten up by rising commodity prices during the upturn. These gains were then realized when prices crashed, but it is misleading to imply a pattern of consistent wage growth during the downturn.

The piece also correctly notes that unemployment has been concentrated among a smaller segment of the workforce than was true in the 1981-82 recession. This is a direct implication of the high levels of long-term unemployment. However, it is also worth noting that part of the reason that unemployment is more concentrated is that the workforce is much older today.

Brad DeLong:

Wait a minute.

Unemployment in 1980 averaged 7.2%–and affected 18.1% of the labor force. Unemployment in 1982 averaged 9.7%–and affected 22% of the labor force Unemployment in 2008 averaged 5.8%–and affected 13.2% of the labor force. In those three cases the total number of those affected by unemployment at some time during the year was 2.3, 2.5, and 2.3 times the average unemployment rate.

In 2010 the unemployment rate will average 9.5% of the labor force, and 2.3 times that will be… 22% of the labor force.

And, as Bob Reich pointed out at coffee at Brewed Awakening yesterday afternoon, there are many more two-earner households than there were in 1982: the share of households affected by an unemployment spell is thus likely to be significantly higher than it was back in 1982.

Arnold Kling:

Health care now approaches 20 percent of the economy. With health insurance included in compensation, that means that 20 percent of compensation is determined not by your skill level, but by the median cost of health insurance. If the value of your skills has been rising faster than the median, then maybe that is not a problem. However, if the value of your skills has been rising more slowly than the median, then your skill level is no longer enough to overcome the health insurance hurdle.

Let the worker’s subjective valuation of health insurance equal V. Let the cost of health insurance equal C. Let the marginal product of labor equal M. Let the opportunity cost of the worker’s time equal W. Then we have:

M – C ?= W – V

The worker takes the job if and only if the left-hand side exceeds the right-hand side. If the excess of the worker’s marginal product over the cost of health insurance is not greater than the worker’s take-home wage requirement less the worker’s subjective valuation of health insurance, then the worker will not be employed. That may be what we are seeing today.

For example, suppose that your marginal product is $25,000, but the cost of employer-paid health insurance is $15,000. The means that the employer can only afford to give you pay net of health insurance costs of $10,000. Suppose that you would not pay more than $5,000 for health insurance if you paid for it yourself. Then the value of the job to you is $10,000 + $5,000 = $15,000. If you value your time at more than $15,000, then you will not take the job.

It is not that the marginal product of workers is close to zero. It is that the marginal product of workers is close to the median cost of health insurance, and workers do not value health insurance that highly

Thank You, Mrs. Ladd*, Wherever You Are

David Leonhardt at NYT:

How much do your kindergarten teacher and classmates affect the rest of your life?

Economists have generally thought that the answer was not much. Great teachers and early childhood programs can have a big short-term effect. But the impact tends to fade. By junior high and high school, children who had excellent early schooling do little better on tests than similar children who did not — which raises the demoralizing question of how much of a difference schools and teachers can make.

There has always been one major caveat, however, to the research on the fade-out effect. It was based mainly on test scores, not on a broader set of measures, like a child’s health or eventual earnings. As Raj Chetty, a Harvard economist, says: “We don’t really care about test scores. We care about adult outcomes.”

Early this year, Mr. Chetty and five other researchers set out to fill this void. They examined the life paths of almost 12,000 children who had been part of a well-known education experiment in Tennessee in the 1980s. The children are now about 30, well started on their adult lives.

On Tuesday, Mr. Chetty presented the findings — not yet peer-reviewed — at an academic conference in Cambridge, Mass. They’re fairly explosive.

Just as in other studies, the Tennessee experiment found that some teachers were able to help students learn vastly more than other teachers. And just as in other studies, the effect largely disappeared by junior high, based on test scores. Yet when Mr. Chetty and his colleagues took another look at the students in adulthood, they discovered that the legacy of kindergarten had re-emerged.

Students who had learned much more in kindergarten were more likely to go to college than students with otherwise similar backgrounds. Students who learned more were also less likely to become single parents. As adults, they were more likely to be saving for retirement. Perhaps most striking, they were earning more.

All else equal, they were making about an extra $100 a year at age 27 for every percentile they had moved up the test-score distribution over the course of kindergarten. A student who went from average to the 60th percentile — a typical jump for a 5-year-old with a good teacher — could expect to make about $1,000 more a year at age 27 than a student who remained at the average. Over time, the effect seems to grow, too.

The economists don’t pretend to know the exact causes. But it’s not hard to come up with plausible guesses. Good early education can impart skills that last a lifetime — patience, discipline, manners, perseverance. The tests that 5-year-olds take may pick up these skills, even if later multiple-choice tests do not.

David Shenk at The Atlantic:

For those who still need proof that great teachers matter, the NYTimes has an excellent piece today by the economics columnist David Leonhardt about an “explosive” new study showing great kindergarten teachers have huge effects on future success and well-being. Leonhardt quotes one economist as estimating that a top-notch kindergarten teacher is worth $320,000 per year.

Early development matters. Parenting matters. Schools and teachers matter.

Ryan Avent at Free Exchange at The Economist:

Economics Nobelist James Heckman has found that the earlier one pursues efforts at remediation with underperforming students the more effective the interventions are. And studies have indicated that while the academic knowledge gained from remediation programmes tends to fade, social knowledge is more durable (and it may well be more important over the long-term). In general, it seems like the importance of educational reforms at the secondary and undergraduate level is wildly overstated, while the importance of improvements in education at the primary level (and earlier) is given far too little attention.

Reihan Salam:

The findings haven’t been published yet, and I imagine it will give us far more to chew over. For now, I have some tentative thoughts:

* Standout kindergarten teacher isn’t terribly specific — of the teachers in the survey, how many would be considered standouts? The study tracked 12,000students . Roughly speaking, let’s say this amounts to 600 classrooms and 600 teachers. Were there 100 standouts? Or 10? I’d love to see the curve. Highlighting the standout teachers might give us a misleading picture of the scale of the challenge.

* How much is a standout parent worth? Some children wil generate a great deal of tax revenue over a lifetime. Should we, in light of this fact, give more generous tax subsidies to parents with the characteristics the best predict high future earnings for their offspring? I imagine the answer is no — this would strike most observers as unacceptably illiberal. But improving incentives for parents, as Robert Stein and Ramesh Ponnuru have recommended, seems like a pretty good idea.

Leonhardt offers a few immediate responses:

They can pay their best teachers more, as Pittsburgh soon will, and give them the support they deserve. Administrators can fire more of their worst teachers, as Michelle Rhee, the Washington schools chancellor, did last week. Schools can also make sure standardized tests are measuring real student skills and teacher quality, as teachers’ unions have urged.

Others are less nuanced than Leonhardt. Erik Brynjolfsson, an MIT economist I greatly admire, writes the following:

We would be better off if we paid our teachers a lot more, and attracted more of the best and the brightest to this profession.

Note that while Leonhardt suggests we pay our best teachers more, Brynjolfsson suggests that we pay all teachers a lot more. But again, how many teachers were standouts? And were the standouts drawn to the profession for the cash compensation? One can imagine compensating teachers by giving them more autonomy and flexibility, or by limiting the number of disruptive students.

Rather than offer blanket pronouncements on how much teachers ought to be paid, we need to give more thought to allowing more business model innovation in the education sector. As new compensation schemes emerge, we’ll eventually learn more about what works and what does not.

Ann Althouse:

Where does the amount $320,000 come from? It’s “the present value of the additional money that a full class of students can expect to earn over their careers.” And that’s not counting the social and psychological values that may flow from excellent early schooling. But salaries aren’t calculated by the actual benefit the employee bestows on the clients. If it did, there would be some negative numbers. But what if kindergarten teachers were very highly paid? Different individuals would pick kindergarten teaching for a career….

Greg Mankiw:

In fact, it seems a bit hard to believe.  If kindergarten teachers matter as much as this new research suggests, then you would think that parents would have a large influence on their kids’ adult outcomes.  After all, you spend a lot more time with your parents than in your kindergarten class.  But much research in behavioral genetics finds very little evidence for significant parental effects.  (See Judith Harris’s The Nurture Assumption.)   So I am puzzled.

John Cassidy at The New Yorker:

However, as I read the story and the findings it is based upon, some questions crept into my mind. I relate them not out of any desire to discredit the study, which is enterprising and newsworthy, but simply as a warning to parents and policymakers not to go overboard. Yes, good teaching is important. But the key policy issue is raising average teaching standards throughout the education system, not simply seeking out and rewarding exceptional kindergartens. In affluent areas of New York City, parents’ efforts to capture every possible educational advantage for their young children have already reached absurd levels. If this new research is accepted as gospel, I can already see admissions officers at snooty private schools waving it in the air and saying to parents: ‘Look, I told you our $30,000 fees were justified. Where else can you find a kindergarten teacher with a Princeton Ph.D. in Victorian literature?” (In the public sector, meanwhile, the teachers’ unions will cite the new research in support of higher pay claims, ignoring the fact that it doesn’t even address the issue of whether higher pay leads to better-quality teaching.)

All this emanating from a dense academic article that hasn’t been published or peer reviewed. At this stage, there isn’t even a working paper detailing how the results were arrived at: just a set of slides. Why is this important? Because economics is a disputatious subject, and surprising empirical findings invariably get challenged by rival groups of researchers. The authors of the paper include two rising stars of the economics profession—Berkeley’s Emmanuel Saez and Harvard’s Raj Chetty—both of whom have reputations for careful and rigorous work. However, many other smart researchers have had their findings overturned. That is how science proceeds. Somebody says something surprising, and others in the field try to knock it down. Sometimes they succeed; sometimes they don’t. Until that Darwinian process is completed, which won’t be for another couple of years, at least, the new findings should be regarded as provisional.

A second point, which is related to the first, concerns methodology. In coming up with the $320,000 a year figure for the effects that kindergarten teachers have on adult earnings, the authors make use of complicated statistical techniques, including something called a “jack knife regression.” Such methods are perfectly legitimate and are now used widely in economics, but their application often adds an additional layer of ambiguity to the findings they generate. Is this particular statistical method appropriate for the task at hand? Do other methods generate different results? These are the sorts of question that other researchers will be pursuing.

From the perspective of someone whose statistical education didn’t extend much beyond rudimentary probability and econometrics, a few things struck me about the evidence that is presented in the slides. The study confirms that smaller classes have a significant impact on test scores, which was the primary conclusion of the original Tennessee study. And the correlation between kindergarten test scores and later life outcomes—not just earnings, but also home-ownership values, and even death rates—seems to be pretty robust. (See Figures 3a to 3f.) However, the relationship between test scores and earnings doesn’t necessarily have much to do with the quality of teaching. It could simply reflect students’ innate ability, the impact of other students in the class, or other unknown factors.

The researchers try to control for some of these factors, but they can’t rule them out. In arguing that individual teachers play an important role, they rely on evidence that is somewhat indirect, which is inevitable because the Tennessee experiment wasn’t set up to study the impact of teacher quality: quite the contrary. It was designed to gauge the impact of smaller class sizes regardless of who the teacher was. Unlike their students, the kindergarten teachers didn’t get graded; consequently, the new team of researchers didn’t have any data on whether specific teachers were good or bad. They were forced to rely on student test outcomes as an indicator of teaching quality. Effectively, they assumed that if a given a kindergarten class achieved outstanding results its teacher must have been responsible. In many cases, this may well have been true, but we have to take it largely on trust.

*AroundTheSphere’s kindergarten teacher

Duelling Banjos Or Duelling New York Times Columnists

Ross Douthat at NYT:

Cap-and-trade’s backers are correct to point the finger rightward. If their bill is dead, it was the American conservative movement that ultimately killed it. Climate legislation wasn’t like health care, with Democrats voting “yes” in lockstep. There was no way to get a bill through without some support from conservative lawmakers. And in the global warming debate, there’s a seemingly unbridgeable gulf between the conservative movement and the environmentalist cause.

To understand why, it’s worth going back to the 1970s, the crucible in which modern right-wing politics was forged.

The Seventies were a great decade for apocalyptic enthusiasms, and none was more potent than the fear that human population growth had outstripped the earth’s carrying capacity. According to a chorus of credentialed alarmists, the world was entering an age of sweeping famines, crippling energy shortages, and looming civilizational collapse.

It was not lost on conservatives that this analysis led inexorably to left-wing policy prescriptions — a government-run energy sector at home, and population control for the teeming masses overseas.

Social conservatives and libertarians, the two wings of the American right, found common ground resisting these prescriptions. And time was unkind to the alarmists. The catastrophes never materialized, and global living standards soared. By the turn of the millennium, the developed world was worrying about a birth dearth.

This is the lens through which most conservatives view the global warming debate. Again, a doomsday scenario has generated a crisis atmosphere, which is being invoked to justify taxes and regulations that many left-wingers would support anyway. (Some of the players have even been recycled. John Holdren, Barack Obama’s science adviser, was a friend and ally of Paul Ehrlich, whose tract “The Population Bomb” helped kick off the overpopulation panic.)

History, however, rarely repeats itself exactly — and conservatives who treat global warming as just another scare story are almost certainly mistaken.

Rising temperatures won’t “destroy” the planet, as fearmongers and celebrities like to say. But the evidence that carbon emissions are altering the planet’s ecology is too convincing to ignore. Conservatives who dismiss climate change as a hoax are making a spectacle of their ignorance.

But this doesn’t mean that we should mourn the death of cap-and-trade. It’s possible that the best thing to do about a warming earth — for now, at least — is relatively little. This is the view advanced by famous global-warming heretics like Bjorn Lomborg and Freeman Dyson; in recent online debates, it has been championed by Jim Manzi, the American right’s most persuasive critic of climate-change legislation.

Their perspective is grounded, in part, on the assumption that a warmer world will also be a richer world — and that economic development is likely to do more for the wretched of the earth than a growth-slowing regulatory regime.

But it’s also grounded in skepticism that such a regime is possible. Any attempt to legislate our way to a cooler earth, the argument goes, will inevitably resemble the package of cap-and-trade emission restrictions that passed the House last year: a Rube Goldberg contraption whose buy-offs and giveaways swamped its original purpose.

Jim Manzi at The American Scene:

Ross Douthat has a column in today’s New York Times in which he kindly mentions me, but far more important, manages to make a multi-layered argument for why an informed rational observer should oppose cap-and-trade legislation within the length restrictions of an op-ed. In my view, the position that Ross presents – basically, that the cure is worse than the disease – is the rationally persuasive argument that won the day in recent legislative debates in the Congress.

I believe the debate and politics of this issue have, so far, played out along lines I set forth a couple of years ago. That doesn’t mean, however, that the debate is permanently settled. Nothing in American politics ever is, and the attempt to introduce cap-and-trade through legislation, regulation and/or judicial rulings is likely to continue for many years.

David Leonhardt at NYT:

Mr. Douthat mentions Mr. Ehrlich in his column today, to explain why Republicans have blocked action on global warming:

The Seventies were a great decade for apocalyptic enthusiasms, and none was more potent than the fear that human population growth had outstripped the earth’s carrying capacity. According to a chorus of credentialed alarmists [including Paul Ehrlich], the world was entering an age of sweeping famines, crippling energy shortages, and looming civilizational collapse.

It was not lost on conservatives that this analysis led inexorably to left-wing policy prescriptions — a government-run energy sector at home, and population control for the teeming masses overseas.

The analogy to global warming is obvious. Just as ingenuity came to the rescue in the past, allowing people to use resources more efficiently than they ever had before, it could do so again — providing us with ways to emit far less carbon for every dollar of gross domestic product.

And I — like many others, I imagine — would be thrilled if that were what the future held. But I think there are two big reasons to doubt that we’re on another Ehrlich-Simon path when it comes to global warming.

The first is basic economics. When the problem is resource scarcity, companies and individuals have a powerful incentive to become more efficient. It keeps their costs down. Mr. Simon understood this, and it’s the fundamental reason he won the bet.

But global warming is different. The fact that carbon emissions are warming the planet doesn’t make it more expensive to produce those emissions. So companies do not have an ever-increasing incentive to emit less — the way they would if the problem were, say, a lack of oil. Global warming doesn’t solve itself the way that resource scarcity does.

The second reason is the accumulation of evidence. Almost as soon as Mr. Ehrlich and Mr. Simon made their bet in 1980, Mr. Simon’s prediction started looking good. In 1981, as Mr. Tierney wrote, “grain prices promptly fell and reached historic lows during the 1980s, continuing a long-term decline.” (Mr. Tierney noted that an ally of Mr. Ehrlich ignored this trend at the time and focused instead on “blips in the graph.”)

In recent years, though, anyone who had bet against global warming would look as wrong as Mr. Ehrlich did. The Greenland and Antarctic ice sheets are shrinking at an accelerating rate. Scientists have recently revised upwards their predictions of sea-level rises. The planet’s 10 hottest years on record, according to NASA, are: 2005, 2007, 2009, 1998, 2002, 2003, 2006, 2004, 2001 and 2008. This year is on pace to displace 2005 as No. 1.

Matthew Yglesias:

[…] I’ll have a go at this one:

[Conservative opposition to carbon pricing legislation] is also grounded in skepticism that such a regime is possible. Any attempt to legislate our way to a cooler earth, the argument goes, will inevitably resemble the package of cap-and-trade emission restrictions that passed the House last year: a Rube Goldberg contraption whose buy-offs and giveaways swamped its original purpose.

Two objections. One—ACES certainly had its Rube Goldberg qualities, but it hardly “swamped its original purpose” of reducing the risk of climate catastrophe at small economic cost.

Two—if Republican members of congress looked at ACES and thought “nice try, but too many side deals” they were, of course, free at any time to introduce an alternative piece of legislation. They did not. And you can tell by the rhetoric of the broader conservative movement (”cap and tax,” “job-killing energy tax,” etc.) that there was no openness to this kind of effort to find more optimal ways of pursuing environmental goals. On the contrary, every move congressional Republicans have made—from adopting a House posture that made it necessary to forge costly side-deals with coal belt Democrats to adopting a Senate posture that ensures carbon regulation will be left primarily to the EPA—has tended to simultaneously undermine the goal of reducing greenhouse gas emissions while also making the economic impact of the regulations more costly.

The reality is that I don’t think American conservatives need a reason, as such, to oppose effective policies to reduce carbon dioxide emissions. Siding with the Chamber of Commerce against proposed new environmental regulation is just what the conservative movement does. Insofar as any particular person wants to dissent from that judgment in a vocal and persistent way, that person would simply be read out of the movement. The extent to which the conservative movement has its grip on any particular politician (or, indeed, newspaper columnist) can change from year-to-year or day-to-day but there’s no real opening for a conservative person or institution to make a genuine effort to help environmentalists without turning apostate. Things are different in Denmark, but that’s true of many subjects.

Brad DeLong

Douthat responds to Leonhardt and Yglesias:

There are important lessons to be drawn from the doomsday scenarios of the 1970s, but conservatives who expect the warming trend to suddenly reverse itself have almost certainly overlearned them. I would offer two caveats, though. One is that while the economics of resource scarcity did militate in favor of conservation in a way they don’t with carbon emissions, the same wasn’t obviously true of population growth, where many serious people were convinced that the economic incentives were leading the whole world straight into a disastrous Malthusian trap. In hindsight, what we know about demographic transitions suggests otherwise — but that was much less clear in, say, 1969 or so than it is today. (Which explains, in turn, why that era was marked by various proposals and policies that effectively treated “excess” children the way cap-and-trade treats carbon emissions: As something to be regulated or taxed or otherwise coerced out out of existence.)

The second is that the Simon-Ehrlich bet that Leonhardt references took place in 1980, after more than two decades of exponential population growth and population alarmism (and, of course, various disastrous and inhumane policy experiments). So Paul Ehrlich probably thought he had a fair amount of historical evidence on his side when he made it. And if there were an equivalent bet on climate — which, to be clear, I wouldn’t make, since I expect temperatures to continue to rise — it would be taking place now, or a couple of years ago, rather than in 2000 or 1990.

Elsewhere, meanwhile, Matt Yglesias criticizes me for saying that the cap-and-trade bill’s various buy-offs and giveaways “swamp its original purpose.” It’s a good point: I should have said threaten to swamp its original purpose. We know that the buy-offs and giveaways ended up swamping the bill’s secondary purpose (raising revenue, that is), but we don’t know how they’ll effect the primary purpose of reducing emissions: That depends, among other things, on just how imperfect (or corrupt, or easily gamed) the system of “carbon offsets” ends up being. (After several years of implementation, it’s still unclear how well Europe’s emission-trading system works.) In theory, though, Yglesias is right: The legislation as passed by the House could achieve reductions in American emissions in spite of all the side deals and horse-trading. These projected reductions are woefully small in the global scheme of things (if there’s a more optimistic estimate than the one Jim Manzi cites here, please let me know), but they’re substantial in the domestic context.

Yglesias goes on to argue that Republicans are to blame for the giveaways and buy-offs anyway, because it was their intransigence that “made it necessary to forge costly side-deals with coal belt Democrats.” I’m not sure I agree with this: A world where a bloc of Republicans had come on board would probably have been a world where even more Democrats jumped ship (this was not an obviously popular piece of legislation), and you might have just ended up with a slightly different set of side-deals.

Paul Krugman at NYT:

Never say that the gods lack a sense of humor. I bet they’re still chuckling on Olympus over the decision to make the first half of 2010 — the year in which all hope of action to limit climate change died — the hottest such stretch on record.

Of course, you can’t infer trends in global temperatures from one year’s experience. But ignoring that fact has long been one of the favorite tricks of climate-change deniers: they point to an unusually warm year in the past, and say “See, the planet has been cooling, not warming, since 1998!” Actually, 2005, not 1998, was the warmest year to date — but the point is that the record-breaking temperatures we’re currently experiencing have made a nonsense argument even more nonsensical; at this point it doesn’t work even on its own terms.

But will any of the deniers say “O.K., I guess I was wrong,” and support climate action? No. And the planet will continue to cook.

So why didn’t climate-change legislation get through the Senate? Let’s talk first about what didn’t cause the failure, because there have been many attempts to blame the wrong people.

First of all, we didn’t fail to act because of legitimate doubts about the science. Every piece of valid evidence — long-term temperature averages that smooth out year-to-year fluctuations, Arctic sea ice volume, melting of glaciers, the ratio of record highs to record lows — points to a continuing, and quite possibly accelerating, rise in global temperatures.

Nor is this evidence tainted by scientific misbehavior. You’ve probably heard about the accusations leveled against climate researchers — allegations of fabricated data, the supposedly damning e-mail messages of “Climategate,” and so on. What you may not have heard, because it has received much less publicity, is that every one of these supposed scandals was eventually unmasked as a fraud concocted by opponents of climate action, then bought into by many in the news media. You don’t believe such things can happen? Think Shirley Sherrod.

Did reasonable concerns about the economic impact of climate legislation block action? No. It has always been funny, in a gallows humor sort of way, to watch conservatives who laud the limitless power and flexibility of markets turn around and insist that the economy would collapse if we were to put a price on carbon. All serious estimates suggest that we could phase in limits on greenhouse gas emissions with at most a small impact on the economy’s growth rate.

So it wasn’t the science, the scientists, or the economics that killed action on climate change. What was it?

The answer is, the usual suspects: greed and cowardice.

Jonathan Chait at TNR:

But the truth is that public opinion played a major role as well. It’s not that Americans oppose action on greenhouse gas emissions — most polls show they favor it. It’s that they lack strong enough convictions to support the dislocations that any meaningful bill would impose. An AP poll, for instance, found that 59% of Americans would oppose any climate bill if it would cause their electricity bill to rise by even $10 a month. In an environment like this, opponents have a huge advantage in the battle for public opinion.

None of this is to say that a climate bill would be impossible without stronger public support. It’s the kind of issue that requires responsible elites. You would need Republicans to decide that the issue was vital and work with Democrats to craft a mutually-acceptable solution. Instead they positioned themselves to fan the flames of public opposition to any sacrifice or dislocation. The combination of a public with soft views on the issue and an opportunistic GOP made a bill impossible.

My other difference with Krugman is that I don’t think the failure of a bill means the planet will burn. I think it means that the Environmental Protection Agency will take over the issue. This isn’t ideal from an economic point of view. But it is ideal from Congress’s point of view — or, at least, the conservative Democrats and moderate Republicans who hold the deciding votes in Congress. Decreasing economic efficiency by limiting carbon emissions through regulation, rather then a more efficient cap and trade bill, in order to let the Senate avoid voting on the issue is a win for Ben Nelson and Olympia Snowe.

If Obama can hang tough on carbon emissions, he can force the energy industry to put real pressure on Congress to pass a climate bill. Obviously the threat is too abstract right now. But liberals need to get used to the idea that the EPA is the short-term solution and start figuring out how to make that work. the death of legislation in 2010 is not the death of a solution.

David Roberts at Grist:

With the climate bill officially dead, there’s already a trickle of “who’s to blame and what they should have done differently” pieces. I expect it will soon become a flood.

Most of these pieces will focus in the wrong places. Take Lee Wasserman’s new op-ed, “Four Ways to Kill a Climate Bill,” an instant classic of the genre. Wasserman doesn’t like the way Dems talked about the issue and he doesn’t like the policy framework they put forward, which is of course his right. But the implication of the piece is that if Dems had talked the way he wanted them to talk, and put forward the bill he wanted them to put forward, the outcome would have been different. There’s just no reason at all to think that’s true.

Expect to see all sorts of pieces arguing that better “messaging” could have saved the day, e.g., this piece on Daily Kos. Others will argue that their particular policy pony — carbon tax, or cap-and-dividend, or massive R&D money — would have been victorious. Others will argue that demonizing energy incumbents to fire up the base would have worked. Others will blame Obama for not riding to the rescue (Randy’s got a roundup of these).

All this is well-meaning, but it misses the biggest impediments. I don’t think messaging, policy design, or base mobilization are irrelevant — I’ve written plenty about all of them — but their effects were marginal relative to other structural factors. Were I doing an autopsy on the death of the bill, here are the causal factors I’d single out, listed in order of significance:

1. The broken Senate

The U.S. Senate is already an unrepresentative institution: Wyoming’s two senators each represent 272,000 people; California’s two senators each represent 18,481,000 people. On top of this undemocratic structure is a series of rules that have been abused with increasing frequency.

The main one, of course, is the default supermajority requirement that’s been imposed by abuse of the filibuster. I’ll have much more to say on this soon, but suffice to say, the supermajority requirement has perverse, deleterious consequences that extend much farther than most progressives seem to understand.

For a complex, contentious, and regionally charged issue like climate change, the supermajority requirement presents a virtually insuperable barrier to action. I don’t think we would have the climate bill of our dreams if only 51 votes were required, but I’m fairly sure something along the lines of Waxman-Markey or stronger could have made it over the finish line.

2. The economy

You may have noticed that Americans aren’t in a very good mood right now. Unemployment is high and people are suffering. Given that most people don’t follow politics very closely, or at all, that translates to anger and suspicion toward whoever’s in power (despite the fact that, yes, it’s Bush and the Republicans who are responsible for both the economic downturn and the deficit).

Yes, the left could have done a better job of framing a climate/energy bill as an economic boost — mainly by starting earlier and being much more consistent — but the fact is, the environment-vs.-economy frame has been established by a well-funded 40-year campaign on the right. It can’t be overturned in two years. The American people were just bound to be indifferent and/or suspicious of grand environmental initiatives during a time of economic pain.

Those two are the biggies

A Blog Post For Your Interest

The Fed:

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Calculated Risk:

The comments on the economy were slightly more negative than last meeting. The Fed noted the financial issues in Europe, and also commented that “underlying inflation has trended lower”. Each statements was slightly less positive …

Annie Lowrey at The Washington Independent:

Except that this month, the FOMC says that the economy is improving “gradually,” rather than just improving. Last month, financial conditions remained supportive of growth; this month, less so. This month, the FOMC notes that underlying inflation is declining — for the past two months, there has technically been price deflation. All in all, not a particularly comforting message.

Sudeep Reddy at Wall Street Journal:

Four meetings, four dissents. Federal Reserve Bank of Kansas City President Thomas Hoenig kept his dissent streak going strong at today’s Federal Open Market Committee meeting. Given the rest of the FOMC’s stance — displaying more caution about the strength of the recovery — this probably won’t be Mr. Hoenig’s last dissent of the year.

Mr. Hoenig was the lone opposing vote in the FOMC’s 9-1 decision to keep the federal funds rate near zero with the guidance that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The FOMC’s post-meeting statement repeated Mr. Hoenig’s rationale offered in the April statement: “continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.” Anyone looking closely for new language from Mr. Hoenig was met with only one slight alteration from the April statement: an added hyphen between “longer run” that was missing on April 28.

For months, Mr. Hoenig has warned about the potential for near-zero interest rates to create imbalances — that is, bubbles — and spur inflation in the longer run. In a  June 3 speech, he again called monetary policy “a blunt instrument that has a wide set of intended but also unintended consequences that can and have worsened economic outcomes including misallocation of precious resources, inflation and long-term unemployment.” He added, “That is why we want to return to a sustainable long-term equilibrium policy rate, starting soon.”

Daniel Indiviglio at The Atlantic:

By now, many people expected that we would have a more concrete blueprint of when the Fed’s exit strategy will begin. When might it begin raising rates? When will it begin selling the assets it accumulated during the financial crisis? We won’t know the answers to these questions as soon as we thought, because the problems in Europe have made the Fed wary about scaring the market with signs of tightening.

As for rates, the Fed continues to assure banks that they will remain “exceptionally low” for “an extended period.” Kansas City Federal Reserve President Thomas M. Hoenig remains the lone dissenter. He believes that this language should be weakened so the central bank can feel more flexibility to raise rates quickly if inflation suddenly manifests itself.

Of course, at this time, inflation is very low. It appears to be well under control, which makes it unsurprising that the Fed wouldn’t feel the need to provide greater certainty on when it might raise rates by changing its language. As the statement noted, energy prices are actually deflationary.

David Leonhardt at the New York Times:

Mr. Bernanke also believes that the economy is growing “not fast enough,” as he recently put it. He has predicted that unemployment will remain high for years and that “a lot of people are going to be under financial stress.”

Yet he has been unwilling to use his power to lift growth and reduce joblessness from near a 27-year high. Instead, Fed officials are expected to announce on Wednesday that they have left their policy unchanged, even if they acknowledge that the economy has recently weakened.

How can this be? How can Mr. Bernanke simultaneously think that growth is too slow and that it shouldn’t be sped up? There is an answer — whether or not you find it persuasive.

Above all, top Fed officials are worried that financial markets are fragile. They are not so much worried about inflation, the traditional source of Fed angst, as they are about upsetting the markets’ confidence in Washington. Yes, investors remain happy to lend the United States money at rock-bottom interest rates, despite our budget deficit and all of the emergency Fed programs that will eventually need to be unwound. But no one knows how long that confidence will last.

In effect, Mr. Bernanke and his colleagues have decided to accept an all-but-certain downside — high unemployment, for years to come — rather than risk an even worse situation — a market panic, a spike in long-term interest rates and yet higher unemployment. As the last few years have shown, market sentiment can change unexpectedly and sharply.

Still, you have to wonder if the Fed is paying enough attention to the risks of its own approach. They do exist. The recent data on jobless claims, consumer spending and home sales have been weak. On Tuesday, Britain announced a budget-cutting plan that will depress short-term growth there and spill over somewhat into the global economy. The necessary budget cuts in Greece and other parts of Europe won’t help global growth, either.

The main historical lesson of financial crises is that governments are usually too passive. They respond in dribs and drabs, as Japan did in the 1990s and Europe did in 2008. Or they remove support too quickly, as Franklin Roosevelt did in 1937, and then the economy struggles to escape its funk.

Matthew Yglesias:

In today’s Federal Reserve Open Market Committee release America’s monetary policymakers said that an already bad economic outlook now looks worse, as “[f]inancial conditions have become less supportive of economic growth on balance” and that “the pace of economic recovery is likely to be moderate for a time” and “[w]ith substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.” That ought to be a recipe for looser monetary policy, but instead the Fed chose to hold pat. Every time I mention the view that more expansionary monetary, some people chime in with the view that monetary policy can’t be made to work under the current conditions. That may be true, though I don’t personally believe it. But it’s important for people to understand that whatever you think about this question Ben Bernanke himself has never adhered to this view.

David Leonhardt has an excellent column today teeing off that point and making the case for looser policy. I might add that this is hardly the first excellent Leonhardt column of the recession years, and it strikes me as a shame for the NYT to be semi-hiding one of their best columnists in the business section. In a time of economic crisis at least, insightful economic policy writing is a huge part of general interest political commentary.