Part Time for Economics Reasons: Hardly Obamacare

The quacks are out in force suggesting that our economy is undergoing a transformation whereby we have less full-time workers and more people forced to work part-time.   That part is true.   The part that isn't true is the reason often given as the main cause:  Obamacare and the uncertainty of regulations. 

The truth is something different.  As you can see, the issue of part-time employment taking the place of full-time employment became an issue well before the health care legislation ever even become a law. 

In fact, since Obamacare was signed into law the overall number of part-time employed for economic reasons has fallen a bit, just as our unemployment rate overall has been slowly falling. 

Despite the obvious evidence that the phenomenon is almost solely attributable to the financial crisis and resulting recession, it hasn't stopped some economists and conservatives from blaming Obamacare (which by the way I don't disagree that Obamacare is being rolled out poorly, but to blame the entire employment situation on it is counter to the evidence):
here and here, for example.

Never-mind the fact that employment numbers have been revised upward and the unemployment rate continues to drop at a steady, albeit slow pace.   Consumer confidence continues to rise along with the stock markets.   The naysayers still insist that Obamacare is dragging everything down.

And it may yet be true that it might....but the data presently shows that it is the continuing effects of the crisis that are dragging us down.   Anyone who suggests otherwise is likely talking more out of politics than economics.  Yes, U-6 did tick up ever so slightly (unemployment rate including part-timers that would rather work full-time and discouraged workers) but as I've said before on this blog, you should never take one month's report and assume it is a new trend.   It is likely Obamacare will cause a slightly further shift to part time employment but only marginally, and for my money, we should be concerned about the mountain, not the mole hill.

Continuing Evidence: Mainstream Economists are Just Politicians in Disguise

On the right

and

On the left

The point of disagreement is disguised as being a disagreement over the Keynesian multiplier:  is it 1, is it less than 1, is it greater than 1 (recall the multiplier is simply the effect of a $1 cut or increase in spending on GDP)....

But really, economists' views on the multiplier have almost nothing to do with scientific inquiry and have almost everything to do with where they lie on the political spectrum.   Mankiw, being a Republican thinks the multiplier is small (big surprise) and that therefore the cuts won't hurt GDP or employment much.   Goolsbee (for example) being a Democrat thinks the multiplier is bigger - and that the cuts may in fact take a noticeable chunk out of GDP and employment.

The point is, all these economists pretend their differences are a matter of math and science, when they really are almost soley a  difference of politics.  

[Not to mention that both sides are ignoring that the Keynesian multiplier says nothing about employment - it only says what the effect of spending cuts on GDP is.   To the degree that GDP and employment are not 100% correlated (which of course they aren't), the multiplier itself says very little about employment.]

From Keynes' General Theory, Chapter 20:

"It follows from this that the assumption upon which we have worked hitherto, that changes in employment depend solely on changes in aggregate effective demand ... is no better than a first approximation, if we admit that there is more than one way in which an increase of income can be spent."

Dear NRA....

Economics Not the Problem in Egypt, Freedom Maybe

Many in the media make the claim that Egypt's original uprising and continued discontent has more to do with economics than anything else (poverty, income inequality, etc).

However, something I stress in my macro class, is that statistics don't seem to bare a lot of that out - particularly when you compare Egypt to the Untied States (where there is no US Spring).

Egypt has less income inequality as measured by GINI (the data is a decade or two old but I don't think that affects the analysis much):

The Egyptian economy, additionally, has grown by 25% as measured by GDP per capita from 2000-2008 - before the Arab Spring.   During this same time, the US has grown by a measly 9%.  

The unemployment rate in Egypt in 2009 leading up to the Arab Spring was 9%, which was actually less than the unemployment rate in the United States during the same time-frame.  Even looking at just youth unemployment - the rates in Egypt are not really that out of line compared to its neighbors or even the United States.

So, I for one simply don't buy into the fact that the Egypt uprising is economic.   It is far more likely that it is more about political freedoms than anything else.   I think that that is supported by the new uprisings taking place - which are stemming from the government failing to create legitimacy among the people.  

Either that or this begs the question - why aren't WE in uprising?

Average Joe Doesn't Understand Economics

The press flowing (and comments made from that press) from the 'new' idea of the US Treasury minting a new $1 Trillion coin has made me come to the unfortunate conclusion that the press and the average Joe commenter doesn't really understand economics.  This is despite the fact that I'm sure many of them took macroeconomics in school.  Actually, it's probably because of it.

Things that people don't understand:

First, in neoclassical macro texts, teachers tell students how there is a limited supply of funds and that if the government spends it must be taking real resources out of the private economy.  This ignores the fact of course that our 'funds' (ie. money) can be created at will by the US. government as the sovereign controller of its own fiat money.  Fiat meaning that the money is backed by faith, not by any commodity like gold, silver or platinum.  In the real world, the only reason the government borrows money at all is purely due to institutional constraints to the treasury and Fed.   Presently, when the government spends money, it needs to issue bonds.  So the treasury issues bonds, floats them on the private market, and 'borrows' from private citizens or other governments etc.  The US then has an obligation to pay interest on those bonds, but it can always do so, because again, the money can simply be created by the government   But the system need not be set up in such a confusing way.   Were it not for this constraint, there would be no reason the treasury can't just make the funds appear out of thin air, walk over to the Fed, and use that coin to pay for it's spending.   Public 'debt' can be wiped out with a click of a keyboard - no bonds needed.

Enter the $1 Trillion coin!

There is a loophole that says the treasury can mint and use platinum coinage at its discretion and there is no limit to the amount of dollars that coin can represent.  This is a kind of power that the treasury doesn't typically have.   Here comes thing #2 that people don't get about economics.  We are not on the gold standard anymore.   Our money doesn't have to be or be backed by equal value of a commodity.  One platinum trillion dollar coin does not have to be made by or backed by $1 trillion worth of platinum.  It can be a simple small coin the size of a dime, with $1 trillion etched on it - for the very same reason that our $100 bill is not made out of $100 worth of paper and ink.   So, shame on NBC.  And the sheep.  But particularly, all real blame goes to the economics profession for failing these people!

But won't that cause inflation?

Here is thing #3 people don't understand: money doesn't cause inflation.   Demand (spending) pressure exceeding supply pressure (production / productive capacity) causes inflation.   When demand exceeds supply, people start circulating more and more money around the system, but for a given level of real output, all that does is raise prices.  The misunderstanding here is that most neoclassical mainstream economic textbooks assume that the more money the government makes, the more borrowing and spending that happens.  But that is ridiculous.   One need only see the massive amount of money the government has put into the banks to see that banks don't loan more money just because it's there.   This is classic chicken / egg problem.   Textbooks say more money means more spending.  Reality says more spending means more money.   Spending over our means is a problem - but not one in our present depressed economic environment.

In any case, the $1 trillion coin could not possibly create inflation anyway, even under the textbooks' models, because it will never even reach the private banking industry.   The treasury would use it to pay it's debt, accounts would be credited and debited, and the coin could be melted down.  The coin is just a legal means to get the Fed to allow the treasury to pay down a portion of it's debt.   The actual end result is simply someone at a computer changing two sides of a ledger.

Why do we get taxed at all then if in reality the government can just make 'funds' out of nothing?  

Because in a modern market driven largely by complex financial business, market functionality is inherently unstable and prone to speculative bubbles and bursts.   One way these bubbles form is when people have access to too much liquidity via credit and go on a spending spree with their credit cards that they can't really afford.   This kind of thing often results in certain markets being significantly over-priced (like housing in the early 2000s) and then when a crash happens it can obviously wreak havoc on everything and everyone, around the globe, much as it did in 2008-2010.

Taxes, aren't really sources of 'revenue' for the federal government.   The only real purpose they serve is to regulate demand (spending pressure).  Higher taxes reduces spending pressure (particularly on investment) and reduces potential bubble creation.   This is thing #4 that people don't understand and it's probably the most counter-intuitive.  In most neoclassical macro texts, taxes are treated as a part of national savings - part of a pool of limited funds from which to draw from for spending.   But it really isn't.   Taxes aren't needed to fund federal spending, and therefore taxes are not revenue, and therefore taxes are not a 'pool of funds' used to pay for anything.  Their sole purpose is to regulate the economy and redistribute income  - to keep it from getting too hot or too cold - and to ensure that the inequality wealth gap does not get out of hand.     

The real culprits....

...are the mainstream economists who continue to tell outdated or just flatly wrong tales about how our economy actually functions.  In the sense that many politicians take their cue from these economists, it's actually economists that are then to blame for our political problems.  The $1 trillion platinum coin can solve our economic problem, but it can't solve the political problem that has been created.   That takes something more than money.

Government Should Borrow More, Not Tax More

Fiscal Cliff has been averted, at least for two more months where we will have an even bigger cliff to hurdle. Of course, I never liked the term 'fiscal cliff' since it implied there's some sort of inherent government insolvency issue even though that was never the issue.   It has been and will continue to be a political cliff - caused and created solely by inept politicians (congress).

Our present national public debt stands at around $12 trillion (76% of GDP roughly).  That number sounds big, but since the debt essentially represents money we owe ourselves, the number itself is relatively meaningless unless compared to other things.   This point is something radical (read: mainstream) Republicans don't seem to grasp.   The bill to avert the fiscal cliff for now passed but no thanks to 100+ of these mainstream radicals that are more concerned about this meaningless number than the ability of our fragile economy to continue to grow.

So, what should the number be compared to?  Well, if the government is racking up 'too much debt', interest rates will tend to rise and inflation will spiral out of control.   Interest rates, however, today, maintain themselves at all-time lows and inflation is tame and stable.   And, interestingly, if any real person in the market thought inflation posed a problem in the future, we'd see interest rates start to rise accordingly, but they aren't so that is why we know that neither are problems at all.   What about all that money the Fed pumped into the economy - won't that add to inflation?   No.   That money has been largely doing what it has been doing for the better part of 4 years - sitting there not being lent or borrowed as 'excess' bank reserves. Surely as the economy picks up, more of this money will be floated into the broader economy, but that's ok - because along with this money increase will be an increase in production and economic output - which will act to tame any inflation.

So, Republicans continue their airless rhetoric about 'imposing costs on future generations' and all that nonsense which has absolutely nothing to do with reality.

Democrats aren't much better - allowing significant back-breaking tax increases not just on the rich but on the average Joe.  We could have avoided not just the taxes on those making >$400K, but also the 2% social security payroll tax increase that hit most Americans' paychecks this week.  Both of these tax increases, it is estimated, may reduce the output of our fragile economy by nearly a whole 1% point of GDP in the coming year.  

The better alternative would just have been to continue to do what America does best: borrow.  There's never been a better time to do so in a market with record low interest rates after all!  Everyone wants our bonds as it is what with China continuing to be shaky and Europe still very much in a crisis.   Borrowing, at the end of the day is simply issuing US-denominated bonds for US currency, both of which can be converted into each other - hence the reason why government borrowing is like borrowing from oneself - the US controls its own currency after all.  There are certain technical political restrictions which make the intersection of our fiscal and monetary policy a bit convoluted at present, but there are those in congress and in academia advocating for a most realistic change to our system to accommodate the simple fact that 'debt' by the federal government is not really 'debt' at all.  

Policy Thought for Veterans Day

The present unemployment rate is 7.9%.   But as Iraq War veterans have been flooding back home and Afghanistan War veterans are expected to be coming home in droves over the next 2 years, some are having a tough time adjusting to the cruel ways of market capitalism - the onus is on them to find a job in this tough economy.   There are institutions out there that try to make it easier for vets to transition.   But these aren't widely marketed and don't guarantee anything other than an increased access to a chance to be hired.   That's not the same thing as a job.

Meanwhile, the unemployment rate of recent US veterans is 2% higher than the national average.    And for some categories of recent vets (women, 2001-present), it's almost 2X higher: 15.5% and this is projected to rise rapidly as the surge of vets finally come home.

What is our country to do to support these men and women?   We could continue our current track of offering lip service, or we could work to enact a real policy change that could have a real positive effect.  The only way to directly solve this problem is to enact a thoroughly non-mainstream economic policy (albeit on a smaller scale): jobs guarantee specific to our returning vets.  

A jobs guarantee program is exactly what it sounds like.  Instead of trying to indirectly get people back to work by stimulating demand/spending, or by providing more opportunities for interviews etc, the government literally guarantees a public job potentially offering a laundry list of positions including: beautification, public works, counseling service to fellow vets, etc.  In the past I've expressed concern about enacting a nationwide jobs guarantee program, and I still have those concerns:  creating another unproven permanent government bureaucracy with the potential to increase beyond its initial scope, promoting potentially nontransferable job skills, disrupting the private labor market, creating a moral hazard of labor, etc.   But, when we are talking about creating this on a much smaller scale, and for a specific segment: for recent veterans, most of those concerns become minuscule compared to the potential benefit - the necessary sacrifice we owe our returning soldiers.  The least we can do is guarantee them a minimum wage paying job while they are undergoing private sector job-search.  This point of this program would not be to give a solider a permanent job - but to give them temporary work, to more fully employ their expertise and resource, until they can find a better higher paying private sector job.

It's time to do this.  Stop wasting money on all these government services that don't get vets jobs - they maybe just get them in the door.   That's not good enough.  In the meantime, we waste precious expertise, talent and labor resource that could be adding to our GDP, and our tax revenue.   The other added benefit of this program is that it can act as a small-scale trial / test for a more broadened nationwide program.  Maybe it will prove the skeptics, like me, wrong.  And if it doesn't, if it does have unintended consequences, the scale of it means the costs are small relative to the potential debt we owe our soldiers.