Recession

Bad news for workers today. Bloomberg:

The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades, signaling that the world's largest economy is stalling.

Payrolls fell by 49,000 after a 28,000 drop in April, the Labor Department said today in Washington. The jobless rate increased by half a point to 5.5 percent, higher than every forecast in a Bloomberg News survey, partly because an influx of teenagers into the workforce exceeded jobs available.

If there's a silver lining, it's that the House Democrats may find the wherewithal to keep an extension of unemployment benefits in the war funding package the Senate passed. There'd been talk of pulling it out recently. And it'll make life harder for the folks opposed to the benefit extension, including President Bush and hardcore conservatives in the House and Senate. Its prospects for enactment have significantly increased.

Furthermore, the media is saying that the dramatic uptick- the biggest in 22 years- is in part due to a lack of summer jobs for youth. Congress should also look into youth employment programs that could address this specific problem.

A bunch of bloggers this week took up the argument over whether universal programs were better than means-tested ones, especially in terms of political sustainability. Kathy G. and Ezra Klein think they are, while Lane Kenworthy dissents.

It's probably worth adding that the way a program is delivered matters, too. CLASP's Elizabeth Lower-Basch thinks this through in a new paper on the relative merits of tax credits and benefit programs.

For those concerned about low-income families, tax credits have two significant advantages over public benefit programs. From a political perspective, it is often easier to win bipartisan support for expanding tax credits than for public benefits. And from the recipient’s perspective, is it less time consuming and stigmatized to apply for and receive tax credits. However, public benefits are more responsive to families’ changing circumstances and better meet immediate needs. It is also easier to target benefit programs based on non-financial factors.

And jurisdiction probably matters. The recession is playing this factor out right now. At the federal level, targeted programs are getting more support, because economists have been arguing that they help get the economy going again, and more people need the safety net they provide. The second stimulus package may contain many expansions or extensions of social programs. But in the states, policymakers are being pressured to cut back on funding for targeted programs. If the federal government doesn't act, they're likely to go ahead with cuts.

When a program could be made universal with few downsides, that's probably the savvy thing to do. But I don't think we should be afraid of targeting aid if that's the best way forward on policy merits. There are ways to deal with its treacherous politics.

An article on the perversity of recession-induced budget cuts from the Miami Herald:

Florida child-welfare administrators are being asked to cut tens of millions of dollars from safety-net programs for vulnerable children at a time when kids may be at greater risk.

Reports of child abuse and neglect rise during periods of economic hardship, studies show. With Florida's economy widely believed to be in recession, calls to the state's child-abuse hot line were up 17 percent in March over the previous year.

But lawmakers are considering deep cuts to the very programs in the Department of Children & Families and other agencies that support struggling families or enable the state to determine which children are most endangered.

The cuts, which would total more than $100 million, have already had an effect: They have convinced a Miami-Dade foster mom that she won't be able to afford to adopt the severely disabled 7-year-old she has cared for over the past six years.

''We don't have money -- that's all you hear. We don't have money,'' said Kim Rowe, 48, a legal secretary who took Courtney in six years ago when her parents' chronic drug abuse led to serious neglect. Rowe has been struggling ever since to provide for the girl, who has severe cerebral palsy and mental retardation and cannot eat without a feeding tube.

One complaint about the article: it fails to put these cuts in the proper budgetary context. The Republican legislators responsible for the cuts are quoted as saying they have no choice- that there's not enough money.

Leaders of both the House and Senate say they have been backed into a corner by dire economic times and have shown leadership when forced to make tough choices over the budget.

''The main principle we have put behind this budget is we can't spend money we don't have,'' said House Majority Leader Adam Hasner, a Delray Beach Republican.

Gov. Charlie Crist said the legislative process is not yet over, and he is hopeful ''we will be able to do more'' for children.

''"We want to make sure we protect the most vulnerable among us,'' Crist said this week. But, he added, lawmakers ''have a very difficult job,'' and this year is much harder for everyone than years when ``it's real easy up here to just dole out money when it's flying in.''

But state budgets aren't like bank accounts. If they run out of money, they can go get more by taxing people or getting a grant from the federal government. The federal government hasn't stepped up yet, which is the fault of the usual suspects (insane Republicans, weak-kneed Democrats). But your Florida Republicans, I'm guessing, probably don't feel much like taxing rich people to get the money for child welfare programs either.

So it's not there's no money. It's that rich people would rather keep it for themselves. See this Center on Budget and Policy Priorities piece for more on what states can do in a budget crunch.

From our friends at the National Employment Law Project, an nice website that provides resources on extending unemployment insurance to provide relief to workers during the current economic downturn.

Good news in the NYT today about the Democrats' plans to push for extended unemployment insurance.

Job losses in the national economy combined with a surge in new claims for unemployment insurance are giving a boost to proposals — pushed for months by Democratic leaders and labor groups — to extend unemployment benefits beyond their usual limit of 26 weeks.

Bolstering the case for an extension, its advocates say, are indications that laid-off workers are having an especially tough time finding new jobs, even compared with past recessions.

Over the last year, more unemployed workers have exhausted their benefits before finding new jobs than in the years preceding the recessions of 1990 and 2001, according to a new analysis by a private research group, the National Employment Law Project, which will present its findings to Congress on Thursday.

In addition, the Committee on Ways and Means has a brief on the employment situation and the need for extended unemployment insurance. The Join Economic Committee has a similar report out, too. Both make the case, as CLASP's paper does, that the economy is so bad already that a relief package is necessary immediately.

Economic stimulation is all well and good, and all these proposals would probably have a strong stimulative effect. But that's now a secondary consideration. Relief policy no longer needs to be shoehorned into the narrow stimulus frame.

Today's jobs report from the Bureau of Labor Statistics is grim, grim, grim. According to CEPR's Jobs Byte:

The private sector lost 101,000 jobs in February according to the establishment survey. This loss, combined with downward revisions to job growth for the prior two months, brings the 3-month decline in private sector employment to 141,000 jobs. Overall employment fell 63,000, the second consecutive monthly decline. Consecutive months of job loss have not occurred outside of periods associated with recessions. The unemployment rate edged down slightly to 4.8 percent, as 644,000 people were reported as leaving the workforce.

....

There can be little doubt from this employment report that the economy is now in a recession. It is now shedding jobs at a rapid rate, with the declines showing up in most sectors. In fact, job loss is probably understated because of the imputation for jobs in new firms.

The latest from Kuttner on how Dems and allies mis-messaged the stimulus:

In addition, the Democrats were (and still are) hobbled by the fiscal conservatives in their own ranks. In the negotiations with Speaker Nancy Pelosi, the House Blue Dog Caucus insisted that the overall size of the stimulus be held down. The Clintonian idea that the Democrats should first and foremost be the parsimony party still has substantial support. The Democrats actually entered the negotiations proposing a smaller stimulus number than the administration.

The Democrats also bought the centrist mantra, repeated endlessly by a chorus that included former Treasury Secretary Larry Summers, the Center on Budget and Policy Priorities, and countless others, that the stimulus should be "timely, targeted, and temporary." Why this tepid trilogy of weak T's? Democrats were fearful that the economic downturn, absent these caveats, would become an excuse for another round of permanent Republican tax cuts. So instead of looking toward the fall election and the real economic plight of the electorate, they kept looking over their shoulders at the Republicans.

The conventional wisdom among centrist economists is that stimulus bills are very risky. By the time they get through Congress, the recession is often over (hence, timely); Congress is tempted to turn them into Christmas-tree, special-interest bills (hence, targeted); and tax cuts, once enacted, tend to become permanent holes in the tax code (hence, temporary). This wisdom is accurate as far as it goes, but in a structural economic crisis, it doesn't go very far. So instead of coming out of the box with a recovery program that offered at least a down payment on reversing 30 years of economic insecurity, and beginning a serious effort to repair the financial crisis, Democrats yet again were enablers of President Bush.

They were rewarded with a photo op beside a hugely unpopular and failed president bringing Democrats to heel. In the larger context of the general election, Timely, Targeted, and Temporary signaled nothing so much as Think Small.

Robert Reich's op-ed in the Times today is a good read. He elaborates on his "it's the inequality, stupid" message:

WE’RE sliding into recession, or worse, and Washington is turning to the normal remedies for economic downturns. But the normal remedies are not likely to work this time, because this isn’t a normal downturn.

The problem lies deeper. It is the culmination of three decades during which American consumers have spent beyond their means. That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.

The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power — and not just temporarily.

Much of the current debate is irrelevant. Even with more tax breaks for business like accelerated depreciation, companies won’t invest in more factories or equipment when demand is dropping for products and services across the board, as it is now. And temporary fixes like a stimulus package that would give households a one-time cash infusion won’t get consumers back to the malls, because consumers know the assistance is temporary. The problems most consumers face are permanent, so they are likely to pocket the extra money instead of spending it.

The subtext here is the Brookings/Hamilton Project's "temporary, timely, and targeted" constraint, their influential proposal for how to design the stimulus package. Reich is arguing that the "temporary" condition prevents policymakers from addressing the issues behind the downturn. So not only are these constraints bad strategy- they're bad policy.

In an earlier post, Matt noted that during the last recession states cut back on health insurance assistance for low-wage workers. Unlike the federal government, states generally have to produce balanced budgets under their constitutions, which limits their ability to expand programs during economic downturns.

This is why Congress should have include state and local aid in the anti-recession package they passed last week. According to yesterday's CQ, the Bush Adminstration is preparing to compound the problem by promulgating new federal regulations that would force states to pick up a greater share of total spending on Medicaid:

The Bush administration is poised to issue a slew of new Medicaid rules that would shift billions of dollars in costs for the program to the states — and there may be little that the financially strapped states or their congressional patrons can do about it.

....

Together, the regulations would reduce federal spending on Medicaid by about $12 billion over five years, said Andrea Maresca, senior legislative associate for the National Governors Association.

Congress could block the rules, but only if conservatives in the Senate agree not to fillibuster, which, given their recent track record, seems unliikely.

According to a new AP-Ipsos poll, the people have a clear favorite when it comes to economic stimulus:

The heck with Congress' big stimulus bill. The way to get the country out of recession — and most people think we're in one — is to get the country out of Iraq, according to an Associated Press-Ipsos poll.

Pulling out of the war ranked first among proposed remedies in the survey, followed by spending more on domestic programs, cutting taxes and, at the bottom end, giving rebates to poor people in hopes they'll spend the economy into recovery.

From the topline results, the percentages of those responding that particular policies would help fix the country's economic problems "a great deal":

Cutting taxes: 36%
Putting more money into the hands of poor people: 29%
Increasing spending on domestic programs, like health care, education, and housing: 43%
Pulling out of Iraq: 48%

As far as I know, this is the first poll to include pulling out of Iraq in an economic context. See this compilation for more polling on recession prevention packages.

While the current downturn hasn't been caused by the Iraq War, the increase in military spending during the Bush presidency has had, and will continue to have, considerable economic costs for the United States, as Dean Baker has documented. Even if they won't prevent a recession, leaving Iraq and reducing military spending would strengthen the economy, in large part by freeing up funds for domestic investments.

One of the notable things about today's neo-Malthusian balanced-budgetism—see here for a typical inside the beltway variety—is that it studiously avoids calling for controls on military spending. Warren Rudman, moderate conservative though he may be in today's times, is no Ike Eisenhower.

PS: Thanks to John Schmitt for bringing the AP-Ipsos poll to my attention.

Charitable social services are already starting to feel the recession pinch, according to the Chronicle of Philanthropy:

For charities that aid the poor, the strains of the economy have grown more serious. At the Salvation Army's Southern California Division, donations to the charity's year-end Red Kettle drive dropped, signaling difficult times ahead.

While the nonprofit organization is still counting some late-arriving gifts from companies and other donors, the money it raised on the street was down by 6 percent.

Meanwhile, demand for emergency assistance with necessities such as food, shelter, and medicine increased by nearly 25 percent last year, according to Lt. Colonel Paul Bollwahn, the divisional commander.

"Out here, the cost of apartments is up by nearly 6 percent, and foreclosures are up by a lot," he says. "Food and utilities went up. It appears now we are in a situation where people still have their jobs. But for people getting hit, they are getting hit hard."

Charities are another group that the stimulus package neglected, and this will have very very bad consequences, because charities picked up a lot of the slack caused by funding retrenchment in the Bush years. Lots of low and middle income people are probably running out of places to turn for help, right when they need it most.

Same goes for state and local governments, whose programs for the unemployed and low-wage workers will likely be on the chopping block soon, as they were during the '01-'03 downturn when states shed about 1 million Medicaid recipients.

This is another reason why governing by tax cut just doesn't work all that well. Programs (both governmental and non) provide essential services that can't be obtained as efficiently when you give people a rebate. The Moody's "multiplier effect" numbers showed as much- putting money into government programs outperformed tax breaks nearly down the line. Extensions/expansions of unemployment insurance, food stamps and everything else really should have been in that package, and it's to everyone's detriment that they and all the other spending proposals weren't.

One wonders if that's why the conservatives opposed their inclusion so vigorously. Because if they worked, and all evidence indicates they would have helped, maybe the public wouldn't be as down on government.

Sorry for that title, but I just had to use it before Barbara Enrenreich did.

I actually have nothing more to say about the anti-recession package passed by Congress yesterday, but will recommend the following:

• Dean Baker's TPM Cafe post on the package
• a polemic by David Michael Green.

And, for wonks: the Joint Tax Committee's mucho technical analysis of the legislation.

Finally, the Tax Policy Center has posted their preliminary analysis of the distributional effects of the individual benefit provisions in the bill. The big winners: families in the fourth quintile, 98.3 percent of whom receive an average benefit of almost $1000. Overall, 87 percent of households receive an average benefit of $714. Some 74 percent of families in the lowest quintile receive a benefit; the average size of which is $420.

I want to emphasize another bit of the Kuttner piece that Matt noted in his last post:

In fact, the entire concept and language of "stimulus" misses the point—and misses a huge opportunity. A stimulus is a macro-economic concept. It is sensible medicine when the economy is in an ordinary business-cycle downturn. Government deficit spending or tax cuts can pump more money into the economy, as can lower interest rates mandated by the Fed.

But this is no ordinary cyclical recession. Rather, it is a sharp and needless economic contraction, caused by a serious blow to the financial system, which was in turn the result of deregulation. Banks' balance sheets have taken a huge hit from the spillover of the sub-prime disaster, and credit remains scarce and expensive even after several rate cuts by the Federal Reserve.

Worse, this downturn comes on top of three decades of stagnant or declining real living standards for about two thirds of Americans, and increasing insecurity of employment, health insurance, and retirement, as well as rising costs of housing, education, and energy. So instead of a modest stimulus package, we need a major recovery program, ....

Note that Kuttner's beyond-stimulus view echoes the points made by the Rockridge Institute last week on framing a stimulus package.

Moving forward, the important thing will be for progressives to move from a short-term stimulus frame to the broader long-term frame that Kuttner, Rockridge and others propose.

By a vote of 81-16.

Here's the Senate Finance committee's summary of the bill:

The compromise legislation will provide stimulus checks to most Americans – including seniors living only on Social Security and disabled veterans, as the Senate Finance Committee proposed. Stimulus checks for the survivors of disabled veterans have been added. These Americans are most likely to spend stimulus funds quickly – fulfilling the bill’s goal of boosting consumer spending and the American economy.

Safeguards proposed by the Finance Committee to ensure that illegal immigrants do not obtain rebates or bonus payments for their children remain in the final agreement as well. Income caps have been returned to the House-proposed level of $75,000 for single taxpayers, $150,000 for joint returns.

....

The compromise legislation retains tax relief for American businesses, in the form of enhanced expensing and depreciation provisions for businesses buying equipment and placing it into service this year. This tax relief will encourage businesses to make investments that will enable them to keep growing – and the requirement for investment this year will achieve the stimulus bill’s goal of injecting money into the economy right away.

Final score: $106 billion in anti-recession payments to people; corporations get $45 billion.

Other good stuff for people-unemployment compensation extensions, green energy incentives, home heating aid-is gone.

The business tax breaks will have about as much positive effect on the economy as a massive government plan to raise alpacas (well, actually less; $45 billion buys a lot of alpacas, and the multiplier effects are higher, so ....), but that's conservative economics for you

Bottom line: better than the House bill, and lots better than what the Administration initially proposed, but D's gave away too much, and got too little, to cement this deal.

One vote short of the 60 needed to overcome a fillibuster by Senate conservatives:

A $158 billion plan to stimulate economic growth failed in the Senate late Wednesday on a 58-41 procedural vote, despite support from a majority of senators.

The bill needed 60 votes to be considered under Senate rules. At the last minute, Senate Democratic leader Harry Reid switched his vote to no, giving him to right to ask for another vote.

The vote was largely on party lines, with all 49 Democrats and two independents joining with eight of 49 Republicans in voting for it.

For the roll call votes, see here.

Reading the press coverage, it's completely unclear to me why Senate conservatives are blocking the Senate bill. The Senate bill costs a little bit more but not much, and, in conference, it's likely to end up somewhere in between. The Senate bill includes unnecessary business tax breaks, but so does the House bill. Maybe there is some other relevant difference I'm missing, but when some moderate Senate Republicans are saying things like this:

“The Senate finance package is far more preferable,” said Senator Olympia J. Snowe, Republican of Maine, adding that it would help people in her state. “You are out there on a daily basis struggling to make ends meet, with skyrocketing energy prices, home heating oil, gasoline, every dollar counts, and that’s what this legislation is about.”

... one wonders what the conservatives are thinking.