Economics, Pethokoukis, U.S. Economy

Where are US jobs being created? Not in the middle

McKinsey Global Institute

McKinsey Global Institute

Susan Lund of McKinsey Global Institute tweets the above chart that displays an ongoing economic trend called job polarization. (I have written about this here, here, and here among other places.) Or as Lund puts it: “Where are the middle class jobs? US job growth post-2008 is in skilled professions and low-skill, part-time jobs.” Thanks to both automation and globalization, jobs in the middle that can be “scripted, routinized, and automated” continue to disappear. What’s left, as MGI puts it, are those — both high and low skill — that involve “complex problem solving, experience, and context (e.g., lawyer, nurse).”


MGI has a great report on the subject, Help Wanted, that includes this bit of policy advice:

Enable growth in aggregate demand. Job creation depends on economic growth, so government measures to support aggregate demand (i.e., fiscal and monetary policies) and raise consumer and business confidence remain important. Other policies, such as worker training programs, will be ineffective if employers are not hiring.

Make raising worker skills a national priority. This means programs to improve critical thinking and skills in K-12 education; much higher secondary school completion rates; workforce training; and winning the global war for talent.

Unlock business-creating investment and innovation. Government can stimulate private sector job creation by promoting entrepreneurship and innovation, catalyzing investment in infrastructure, and streamlining business regulations that unintentionally impede business expansion.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.


Hillary’s big economy speech forgets about Obamanomics


It was a weird moment during Hillary Clinton’s big-think economic speech the other day. The former Obama secretary of state and current middle-class warrior had just finished ticking off a bunch of worrisome stats on income growth, income inequality, and social mobility. She really focused on how Canada’s middle-class is now supposedly richer than America’s in an economy with both more equality and a stronger safety net. Then Clinton continued:

That’s not how it’s supposed to be. We often think that we invented the middle-class. So what can we do about it? Of course, a lot depends on our leadership here in Washington and across our country. The 1990s taught us that even in the face of difficult, long-term economic trends, it’s possible through smart policies and sound investment to enjoy broad-based growth and shared prosperity. My husband gave a lecture at Georgetown recently …

Stop the tape. Wasn’t that the moment she was supposed to start trumpeting the achievements of the Obama administration and how Obamanomics has begun to turn around those bad trends? Shouldn’t that have been the “stay the course with Hillary” moment (assuming a 2016 White House run)? Instead, she skipped right back to Bill Clinton’s presidency.

Actually, Hillary Clinton had little to say about the sitting president. About 20 minutes into to the speech, she said this and then almost nothing more about #44:

It’s taken years of pain-staking work and strong leadership from President Obama to get our economy growing again. But it is growing. And there are reasons to be optimistic about our future.

Stop the tape. No mention of the stimulus, or Obamacare, or Dodd-Frank? And those reasons for optimism she went on to list — such as Big Data, shale energy, clean energy, strong US universities — have either nothing to do with Obama or are only tangentially related at best. It was like Hillary was placed in suspended animation in 2008 and just recently revived to give a stump speech about the evils of the Bush tax cuts. Of course her problem is that the glacial Obama recovery hardly or automatically makes the case for the wisdom of Democratic economic policy or a de facto third Obama term. Imagine if Hillary could have said this:

But now, after seven years of hard work, we have righted ourselves. We have weathered the storm. Our economy has recovered to become the strongest in history. And once again, our flag is recognized as a force for good in the world.

We have righted ourselves — the platform is firm again, the base is stable — and from this strong platform we can now launch the great endeavors of the future. We don’t need radical new directions — we need strong and steady leadership. We don’t need to remake society — we just need to remember who we are. We are a great people in a great nation. We have earned our optimism, we have a right to our confidence — and we have much to do.

Now that is how you make the case for a de facto third presidential term, which Vice President George Bush did in 1987 with those words. But Hillary Clinton would be likely laughed off the stage if she said anything like that. And this is the inherent vulnerability of a potential presidential run: All the long-term problems she’ll mention haven’t really gotten any better under the current Democratic president. So, to use Bob Dole’s 1996 phrase, she needs to be a “bridge to the past,” to the bubbly, booming 1990s. And that creates an opportunity for her GOP opponent (again, assuming she is the Democratic nominee) to make the forward-looking, “bridge to the future” case that Bill Clinton effectively did that year against Dole.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.


Pethokoukis, Economics, U.S. Economy

Is automation responsible for stagnant US wages? Economists respond!

Image Credit: shutterstock

Image Credit: shutterstock

How is automation affecting jobs and wages? An interesting economist survey on this subject from the University of Chicago’s IGM Forum:



Let’s drill down into Question B answers weighted by confidence (on a 1 to 10 scale, I believe). Among the economists who I know (off the top of my head) have done direct or related work on this issue:

– Daron Acemoglu (Agree, 9).

– David Autor (Agree, 7). Comment: “Technology and trade/globalization are probably two largest factors. Would also include deunionization.”

– Steven Kaplan (Uncertain, 3). Comment: “IT and automation have helped the “top 1%.” Not clear what that has done to median relative to financial crisis, government policy, etc.”

Of course, the more important question is how will automation will affect the labor market going forward, particularly routine, middle-skill jobs. I am guessing policymakers will underestimate this impact, especially since whatever economics knowledge they have probably incorporates Question A. They will assume automation worries are some Luddite concern cyclically re-expressing themselves into the public consciousness. But dealing with the labor downside of automation should be a key factor driving public policy.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Economics, Pethokoukis

Will El Niño really alter the politics on climate change?

The Upshot

The Upshot

The Upshot’s Nate Cohn:

El Niño is coming. Above-average sea surface temperatures have developed off the west coast of South America and seem poised to grow into a full-fledged El Niño event, in which unusually warm water temperatures spread across the equatorial East Pacific. Models indicate a 75 percent chance of El Niño this fall, which could bring devastating droughts to Australia or heavy rains to the southern United States.

The debate over climate change, however, brings additional significance to this round of El Niño, which will probably increase global temperatures, perhaps to the highest levels ever. It could even inaugurate a new era of more rapid warming, offering vindication to maligned climate models and re-energizing climate activists who have struggled to break through in a polarized political environment.

It has been most inconvenient for environmental activists that even as carbon emissions have soared the past 15 years, global atmospheric temperature has been flat. Maybe that has played a role in American public apathy on climate change. Also likely: The Great Recession focused attention more on economic growth today than global warming tomorrow.

But doesn’t the Upshot story, titled “How El Niño Might Alter the Political Climate,” itself argue against the event influencing public opinion? If the news media does its job, won’t people be aware of the El Niño affect and likely blame any noticeable warming increase on short-term weather variations rather than long-term climate? Assuming, of course, the media does it job.

And while we are on the topic, let me again refer to the really great Russ Roberts EconTalk podcast on climate change where scientist Kerry Emanuel said this about The Pause:

Emanuel: Well, I would be dishonest if I told you I understood that. Yes, the temperature, the global mean temperature, is pretty flat for 15 years. It was also pretty flat from about 1952 to the 1970s or so. So it’s not the first time it’s flattened out. And what we’re–I don’t think the community of scientists is very sure about, is we’re seeing a manifestation of internal variability, natural oscillations that happen to be working against the radiatively[?] forced signal at the moment, or whether there is something about the radiative forcing that we haven’t understood. For example, my colleague at MIT (Massachusetts Institute of Technology), Citizen Solomon[?], just last week published a paper–I think it was inScience, I don’t know if you saw it–suggesting that the fact that we’ve had a large number of relatively mild volcanic eruptions in the last 10 or 15 years may have put enough aerosol[?] collectively into the atmosphere to affect the temperature. Now I haven’t had a chance to digest that. I think the scientific community does have to get on top of this. And in fact all the other periods of reduced and enhanced warming in the past.

Russ: Does the Pause give you pause? You were confident that there is a small chance of a large rise, based on the rough science and some of the models. Does it cause you to be a little more conservative?

Emanuel: : Well, no. Not really. I think that range was generous enough that I would stick with it, until–maybe if we had 30 years of Pause. That would give me pause.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Economics, Pethokoukis

Was not massively helping underwater homeowners a massive mistake?


In their much-praised new book House of Debt, economists Atif Mian and Amir Sufi argue the 2000s housing crash caused a much worse recession than the tech-stock crash because asset losses were more heavily concentrated among the 99% — who then stopped spending. The burst Internet stock bubble, on the other hand, “concentrated losses on the rich, but the rich had almost no debt and didn’t need to cut back their spending.”

Which raises the following counterfactual: what if Washington had pushed massive relief for underwater homeowners?

Now former Obama Treasury Secretary Timothy Geithner doesn’t think something like a principal reduction scheme would have helped much. As he wrote in his new book, Stress Test: “We did not believe, though we looked at this question over and over, that a much larger program focused directly on housing could have a material impact on the broader economy.”

Mian and Sufi disagree. Their research suggests $700 billion in principal forgiveness of underwater mortgage debt in 2009 would have produced a $126 billion spending boost. And that is the direct economic impact. In addition, write-downs “would also have had the indirect positive effect of drastically reducing foreclosures and the associated negative effects of foreclosures on the economy.”

Along the same lines a few years back, Columbia University economists Glenn Hubbard and Christopher Mayer cooked up a mass refinancing plan where homeowners with a GSE mortgage could have refinanced their mortgage with a new mortgage at low rates. This could have helped as many as 30 million borrowers save $75 billion to $80 billion a year for the duration of their mortgage. In effect, a long-term tax cut.

And there was this proposal from economist Martin Feldstein: “To halt the fall in house prices, the government should reduce mortgage principal when it exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that are “underwater” are in this category. If everyone eligible participated, the one-time cost would be under $350 billion.”

But the Geithner “save the banks, save the economy” view, as Mian and Sufi put it, won over President Obama and the day. Mian and Sufi: “The fact that Secretary Geithner and the Obama administration did not push for debt write-downs more aggressively remains the biggest policy mistake of the Great Recession.”

Back to the counterfactual: imagine a plan like the ones Feldstein, Hubbard, and Mayer proposed along with a Fed that was far more active in supporting spending starting in 2008. And now imagine no TARP and no stimulus. Under which scenario does the economy perform better?

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Economics, Pethokoukis, U.S. Economy

Marc Andreessen on how regulation stifles innovation

New York Times reporter Nick Bilton asked venture capitalist Marc Andreessen why Silicon Valley is so tough to replicate:

Mr. Andreessen said new valleys will eventually emerge. But they won’t be Silicon Valley copycats. Over the past couple of years, venture firms have invested in start-ups in Los Angeles, New York, Chicago and all over China. Los Angeles, for example, is home to Snapchat, Tinder, Whisper, Oculus VR and Beats, some of the big tech stories of the year. Mr. Andreessen said another hot place is Atlanta, the home of Georgia Tech.

But he offers a caveat.

“My personal view is that Silicon Valley will continue to take a disproportionate share of the No. 1 positions in great new markets, and I think that’s just a reflection that the fact that the valley works as well as it does,” Mr. Andreessen said.

There is a caveat to his caveat.

In Mr. Andreessen’s view, there shouldn’t be 50 Silicon Valleys. Instead, there should be 50 different kinds of Silicon Valley. For example, there could be Biotech Valley, a Stem Cell Valley, a 3-D Printing Valley or a Drone Valley. As he noted, there are huge regulatory hurdles in many of these fields. If a city wanted to spur innovation around drones, for instance, it might have to remove any local legal barriers to flying unnamed aircraft.

So what kind of valley would Marc Andreessen build? He is a big believer in digital currencies like Bitcoin, as well as in virtual reality. He says enterprises like Bitcoin will change the world on the scale that web browsers did. And before long, virtual reality will be, well, reality.

The bit about regulatory barriers to startups and innovation really jumps out at me. It is a topic I find myself returning to again and again. Too much focus on taxes by folks on the right, too little on regulation.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Economics, Energy and the Environment, Pethokoukis

America’s ‘one of the above’ energy policy

If government wants to reduce carbon emissions, top-down mandates are a pretty costly and economically inefficient of way of doing it. Life is complicated, and command-and-control regulations issued from Washington can’t possibly take into account all the information going into countless macro- and microdecisions by millions of consumers and businesses. One study found, for instance, that a fuel economy standard reduces gasoline use at over six times the cost of a gasoline tax. Yet America is going down the path of mandated emissions reduction. From Politico:

The EPA will launch the most dramatic anti-pollution regulation in a generation early next month, a sweeping crackdown on carbon that offers President Barack Obama his last real shot at a legacy on climate change — while causing significant political peril for red-state Democrats. The move could produce a dramatic makeover of the power industry, shifting it away from coal-burning plants toward natural gas, solar and wind. …

The Environmental Protection Agency’s proposed rule is aimed at scaling back carbon emissions from existing power plants, the nation’s largest source of greenhouse gases. It’s scheduled for a public rollout June 2, after months of efforts by the administration to publicize the mounting scientific evidence that rising seas, melting glaciers and worsening storms pose a danger to human society.

The FT’s Ed Luce offers another useful insight on these new emission rules. They push the US closer to a “one of the above” energy plan — meaning natural gas — rather than an “all of the above” plan.

America has likewise turned away from nuclear power. In his first term Mr Obama announced plans to revive a sector that had essentially been frozen since the Three Mile Island leakage of 1978. Nothing has come of it. Only one new US nuclear power plant is planned and that is years away.

Likewise, Mr Obama set great store in the scaling up of alternative energy supplies such as wind and solar. But in each case the numbers have disappointed. Just 5 per cent of US power comes from non-hydroelectric renewables

Meanwhile, his administration is loath to approve the Keystone XL pipeline that would open up a more secure supply of oil sands from Alberta. Mr Obama used to say that the US was pursuing an “all of the above” energy policy. Somehow, it has dwindled to just “one of the above”. Everything except gas is falling by the wayside.

What could go wrong?

According to Garten Rothkopf, an international advisory firm, the US is set to exhaust its supply of “economically recoverable” natural gas supplies by 2030. That estimate is based solely on existing projects, and excludes those that have been announced but not yet started. It also makes the conservative assumption that there will be just three liquefied natural gas export terminals in operation by then, as opposed to the six already in the works. Everyone is piling into the “dash for gas” on the basis that US gas prices will remain cheap as far as the eye can see. Long before 2030, however, US producers will have been pushed into the more expensive shale formations.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

Economics, Pethokoukis

The US budget deficit continues to shrink rapidly


One of the most underappreciated econ stories right now is the fast-falling US budget deficit — thanks to higher taxes — which was over $1 trillion from 2009 through 2012. In February, the CBO was looking for a 2014 deficit of $514 billion. In April, CBO cut its forecast to $492 billion. But that number is still too high, according to Deutsche Bank. The bank is looking for a 2014 federal budget gap of $465 billion:

Fiscal austerity—both spending  cuts and tax increases—largely drove the narrowing of the gap between  receipts and outlays. Federal outlays declined by -2.4%, and federal receipts,  which are dominated by tax revenue, increased by +13.3%.

Of the $409 billion reduction in the deficit last year, approximately $84 billon was due to reduced expenditures and $325 billion was due to stronger revenues. We estimate that  a little over half (55%) of the revenue gain was the result of higher taxes, while  the rest was due to a more robust economy.

Therefore, fiscal austerity made a  meaningful contribution to deficit reduction in 2013, but the contribution was  significantly skewed toward higher taxes rather than spending cuts.  … We tabulate a rolling estimate of the deficit (shown  below) by taking the difference between a 12-month rolling sum of receipts  versus outlays. Currently, this estimate is running at -$499 billion. The rolling  estimate has been shrinking roughly -$25 billion per month (six month  average); so if this continues, the deficit will be considerably smaller than the  CBO estimates.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.


On Earth 2, Washington bailed out Main Street, not Wall Street

In my new The Week column, I take issue with what Tim Geithner recently told The New York Times. The former Obama Treasury secretary said Americans are “deeply confused and mistaken” if they think there was “a way to somehow protect people without doing things that looked like you were protecting the banks.”

But what if Washington had instead instituted a policy that was part TARP, part QE, part Austrian economics, and part tax cut? Something like this:

The politicians could have let insolvent banks simply go bust. True, such a move would have hammered an already weak economy. To avoid a terrible collapse in spending and investment, however, Washington could have deeply cut taxes or sent tax rebates to households and businesses. How to pay for all those checks? Borrow the money from the Federal Reserve, which, after all, owns the printing presses.

I argue the result would have been a shallower recession and an end to Too Big To Fail.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.