AEIdeas The public policy blog of the American Enterprise Institute Wed, 30 Jul 2014 18:26:24 +0000 en-US hourly 1 Death of a talking point: About America’s ‘part-time job economy’ Wed, 30 Jul 2014 18:19:15 +0000 read more >]]> In a new research note, First Trust economists Bob Stein and Brian Wesbury engage in a bit of economic mythbusting. In the June jobs report, according to the Household Survey, part-time jobs increased by 799,000 out of total job gains of 407,000. That means full-time jobs fell. And that led to lots of hysterical headlines and analysis about  ‘part-time America.” But it simply isn’t true. Stein and Wesbury:

The problem is that monthly employment statistics, especially from the household survey, are incredibly volatile. For example, just two months earlier, in April, part-time jobs were down 398,000 while full-time jobs were up 412,000! In other words, please be careful when playing with these statistics.

[Indeed], most jobs added in this recovery have been full-time jobs. In 2013 alone, 1.5 million full-time jobs were added while 188,000 part-time jobs were lost.

June was what statisticians call an outlier. If we look at the first five months of 2014, January through May, total jobs rose 1.23 million, while part-time jobs fell 153,000. And, during the twelve months ending in June, total jobs are up 2.15 million, with only 10,000 of them being part-time.

In other words, focusing solely on June data is a misdirection. According to Bureau of Labor Statistics data, total part-time jobs were 19.2% of all jobs in June 2014. Back in 2009, total part-time jobs averaged 19.5% of all jobs.

And, just to be clear, we do believe that Obamacare and other regulatory actions, higher taxes and more government spending in the past decade have created a less dynamic economy and more part-time jobs. We just don’t agree with spinning one month’s worth of data into an entire world view. It’s not appropriate, it’s a misuse of data and it’s probably politically motivated rather than any attempt to get a handle on the real economy.


Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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Education and entrepreneurship vs. the rise of the robots Wed, 30 Jul 2014 17:46:38 +0000 read more >]]> An interesting anecdote from economic historican Carl Benedikt Frey that really syncs with what MIT’s Erik Brynjolfsson and Andrew McAfee wrote in “The Second Machine Age.” Two key ways for workers to deal with automation is through education and entrepreneurship:

Labor markets may once again be entering a new era of technological turbulence and widening wage inequality. And this highlights a larger question: Where will new types of work be created? There are already signs of what the future holds. Technological progress is generating demand for big data architects and analysts, cloud services specialists, software developers, and digital marketing professionals – occupations that barely existed just five years ago.

Finland offers valuable lessons in how cities and countries should adapt to these developments. Its economy initially suffered from the failure of its biggest company, Nokia, to adapt to smartphone technologies. Yet several Finnish start-ups have since built new enterprises on smartphone platforms. Indeed, by 2011, former Nokia staff had created 220 such businesses, and Rovio, which has sold more than 12 million copies of its smartphone-based video game, “Angry Birds,” is crowded with former Nokia employees.

This transformation is no coincidence. Finland’s intensive investment in education has created a resilient labor force. By investing in transferable skills that are not limited to specific businesses or industries, or susceptible to computerization, Finland has provided a blueprint for how to adapt to technological upheaval.

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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GDP for second quarter: Strong headline, weak innards Wed, 30 Jul 2014 17:30:59 +0000 read more >]]> “Surprise!” say the sell-side, upbeat economy touts. Second quarter GDP growth came in at a 4% pace, well above the expected 3% pace.

But that’s as good as the news gets.

It’s best to average two choppy quarters, especially when the first quarter was said to have been depressed – now to a minus 2.1% pace – by special factors, like weather. Well, the average growth rate for the first half of 2014 was 0.95%, quite a lot weaker than the 3% pace expected early in the year by the Fed and most analysts and is, actually, pretty close to stall speed.

Inventory changes, change in the stock of unsold goods, exacerbated the volatility of first half growth numbers, accounting for nearly half (1.7 percentage points) of the second quarter growth “rebound.” Final sales, the best measure of demand growth, rose at a modest 2.3% pace after having fallen at a 1% pace during the first quarter. That puts the average pace of US demand growth during the first half of 2014 at 0.65%. We need 4 times that pace to sustain a recovery, especially when the Fed is tapering and talking about raising interest rates next year – as if to declare its confidence in an as-yet-nonexistent, sustainable recovery.

Stronger state and local government spending contributed 0.3 percentage points to the second quarter growth rate, something that’s not likely to continue given that the year-over-year trend pace of government spending growth is minus 0.7%, reflecting a continued atrophy of fiscal stimulus. Adjusting for unsustainable inventory building and government spending, the second quarter “rebound” growth number was 2%, just above the average pace of 1.8% since the end of 2010.


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What if Ron Paul had been Fed chairman? Wed, 30 Jul 2014 17:17:14 +0000 read more >]]> In a breathless Federalist piece,”Conservatives Need To Have It Out Over The Federal Reserve,” Willis Krumholz offers a data-salad recap of the wrong-headed, Austrian-based (sigh …), Paulite-tinged (double sigh …) criticisms of Federal Reserve policy that is currently popular on the right. (I feel really fortunate to have been handed a copy of Milton Friedman’s Free To Choose by my high school econ teacher. Thanks, Mr. Roelofs!)

Let’s keep it simple. Here are two charts. Each shows a different way in which the US and EZ economies have diverged thanks to the tight-money policies of the European Central Bank vs. the easier Fed. Score one for Uncle Miltie over prewar Hayek. Krumholzian policies suggest an economically catastrophic, though ideologically comforting counterfactual.

MKM Partners

MKM Partners

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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A response to the Randian critics of the Ryan anti-poverty plan Wed, 30 Jul 2014 17:04:02 +0000 read more >]]> Jim Pethokoukis and Arthur Brooks in their defense of an economic safety net do not go far enough in their explicit and implicit criticisms of the view of the Ayn Rand Institute and others that a safety net is coercive in terms of its funding source—taxation—and thus inconsistent with individual freedom. The coercion view of government is far too narrow; it is better to think of government in the context of the “contract” theory of the state, in which citizens make choices about institutional constraints and the formalities of policymaking from behind a “veil of ignorance,” that is, not knowing how any given policy will affect them personally. In that kind of model of the relation between the citizenry and the state, it is easy to envision unanimous support for a safety net—that is, voluntary acceptance of “coercive” taxation—as a form of social insurance against the economic uncertainties of life.

To emphasize: voluntary acceptance of coercion is not coercive. It is when government violates the implicit contract—or the explicit one embodied in a constitution—that coercion becomes real. It is far from obvious that a safety net represents such a violation in principle.

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The Obama boom? This just might be all there is Wed, 30 Jul 2014 16:12:13 +0000 read more >]]> Throughout President Obama’s first term, White House economists kept predicting strong economic growth was just around the corner. Soon, very soon, real GDP would grow at 4% a year or more, quarter after quarter.

Never happened. Although the economy grew by 4.0% during the second quarter of this year — pending revisions — it was only the third such occurrence during the recovery that began in summer 2009. In fact, there has only been a single instance of consecutive quarters of even 3% growth or higher, the third (4.5%) and fourth quarters (3.5%) of last year. Now Citigroup really likes that three of the past four quarters have displayed strong, above-trend growth:

We were encouraged by this report and now are even more confident that the economy will continue to grow at more than a 3 percent rate for the balance of the year and into 2015. … So now the data reveal that the economy was growing at 4 percent both before and after the weather distortions. This suggests that the economy has been strengthening over the past year, but that upswing was masked by the weather. … Every sector that exhibited weakness in the first quarter bounced back in the second quarter. The synchronized nature of these swings suggest that there was a single underlying cause (weather). Fundamentals remain healthy and consistent with solid expansion.

But overall you are still looking at another 2%ish year. Indeed, as JPMorgan points out, the economy has expanded by 2.4% over the past four quarters vs. 2.2% over the five years of the expansion. “The big picture is one of modest, but remarkably steady, growth,” JPMorgan economist Michael Feroli writes.

Now “modest” is tolerable if you aren’t following a terrible recession. Big GDP declines, however, are usually followed by a year or two of spectacular growth before the economy settles into its natural pace. As BTIG investment strategist San Greenhaus writes,”Despite the recent strength, and including revisions to the last few years of data, the current recovery still pales in comparison to the last few recoveries. This isn’t exactly the best comparison (given the nature of the recession) but it does illustrate the degree to which the economy is lagging.”


Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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Markets in everything Wed, 30 Jul 2014 16:11:04 +0000 read more >]]> 1. At the website, you can hire a freelancer for help with a variety of services including web development, writing and translation, software development, sales and marketing, administrative support, etc.

2. At the website, you can hire a babysitter, pet sitter, house sitter, or caregiver for your elderly or infirmed family members.

CD regular Nathaniel King sent the links above with these comments: “My wife and I use for everything from resumes and cover letters to copy for sales and marketing campaigns. Using oDesk is much better than searching Google for help on specific professional writing needs. There are reviews and samples from many professionals on this site. We also use to find childcare as well so we can have date nights.”

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Who’d a-thunk it? Taxi cartels don’t like competition from Uber, Lyft, Sidecar, and they’ve launched a smear campaign? Wed, 30 Jul 2014 15:55:38 +0000 read more >]]> The Taxicab, Limousine & Paratransit Association along with concerned members of the transportation industry, is so concerned about your safety their cartel profits that they’ve launched a new campaign called “Who’s Driving You?” It’s basically a public relations effort  smear campaign to discredit their ride-sharing competitors. Check this out (with some minor editing):

The rise of unregulated taxi services—such as uberX, Lyft and Sidecar—is placing passengers, drivers and pedestrians at risk. These companies are a serious threat to public safety our protected and heavily regulated industry profits.

Why? For starters, “ridesharing” companies who use amateur drivers and other unregulated transportation apps are not adequately insured. Their insurance coverage contains various loopholes which could result in uncompensated pain and suffering. These amateur drivers are not subject to screening via public agency background checks that demand fingerprints and that are run through police and FBI databases. Passengers have been assaulted yet some of these companies continue to insist their background checks are the most stringent in the industry. They aren’t. Equally concerning, these amateur drivers are not required to pass any drug tests before they start picking up passengers.

And don’t forget their so-called “surge pricing.” We call it price gouging. These companies charge multiple times the standard amount during emergencies or “peak” demand. Price gouging has been illegal most everywhere and practically forever. These price-gouging companies want to make obscene profits by charging people more when passengers are in dire need or distress—even during natural disasters.

These companies rail against oversight and regulation. We believe the public’s basic right to safety and corporate accountability will be upheld.

The website provides a link that allows you to fill out an incident report if you’ve “had a bad experience with Uber, Lyft or Sidecar.” If so, they’ll “pass your story on to local media outlets for you.” Of course, nothing is mentioned about filling out an incident report on a traditional taxi driver.

MP: As I’ve noted before, it’s important to remember that Uber, Sidecar and Lyft are already very heavily regulated ride-sharing services, and in some ways they are regulated even more intensely than traditional taxis by a very ruthless group of regulators – the consumers who use their services and can rate each driver after every ride. Consumers also have the driver’s cell phone number, name and picture before every ride. The issue really isn’t regulated versus unregulated ride services; the issue really is who is the primary regulator: a) government bureaucrats and legislators who are often captured by the regulated taxi cartels or b) consumers. And there’s no question that captured regulators almost always put the special interests of the well-organized, concentrated groups of regulated producers like the taxi cartel over the public interest of the dis-organized, dispersed thousands/millions of consumers.

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Who’d a-thunk it? Market-based medicine saves money? Wed, 30 Jul 2014 15:29:18 +0000 read more >]]>

I’ve featured the Surgery Center of Oklahoma many times on CD, see posts here, here and here, and watch video above of a special report on the surgery center. Unlike most other medical providers, the Surgery Center of Oklahoma actually posts transparent pricing and offers deeply-discounted, payable-in-advance, cash-only medical procedures. The center does accept private insurance, but it does not accept Medicaid or Medicare — government regulations won’t allow them to post transparent prices online. If any competitor offers a lower price, the Surgery Center will match or beat it, so patients can be guaranteed of getting the lowest price possible.

Here’s a recent news report that illustrates just how much money can be saved when a clinic or hospital operates according to free-market principles and is not burderned by the highly bureaucratic, costly system of government-regulated Medicare and Medicaid.

Oklahoma City-based Surgery Center of Oklahoma has saved the Oklahoma County government approximately $573,000 in medical bills in the five months of its agreement with the county to provide surgery for public employees, according to a report from The City Sentinel.

As of July 17, the “ambulatory surgery center” (ASC) has performed 89 surgeries on public employees at a cost of nearly $336,000, just over one-third of the potential total cost of the surgeries through other providers, according to the Oklahoma County Budget Board. “At a conservative level…it looks like we will save about $1.3 million over 12 months,” said Jon Wilkerson, director of human resources, benefits and payroll for the county, in the report.

In addition to providing direct and huge savings for its patients, the Surgery Center of Oklahoma is also imposing market discipline on its competitors (not unlike the discipline Walmart imposes on Target, etc.), as clinic co-founder Dr. Keith Smith explains here:

“Hospitals are having to match our prices because patients are printing their prices and holding that in one hand and holding a ticket to Oklahoma City in the other hand and asking that hospital to step up,” Dr. Smith said. “So we’re actually causing a deflationary effect on pricing all over the United States.”

MP: We would have a lot more market-based, low overhead, consumer driven health care, and a lot more “price wars” for surgery and other medical procedures if the medical industry moved in the direction of the business model of the Surgery Center of Oklahoma. Unfortunately, the Unaffordable Care Act is taking us in exactly the opposite direction: high overhead health care based on traditional third-party payments that are not transparent to patients, with costs that will tend to escalate over time due to the lack of market incentives and competition, along with the high cost of government red-tape, bureaucracy and paperwork.

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Sorry, the shale revolution won’t save the US economy Wed, 30 Jul 2014 14:34:22 +0000 read more >]]> Even with an unexpectedly strong second-quarter GDP report, the current economic recovery is the weakest since World War II. Even worse, many long-term forecasts — including those from the Congressional Budget Office, Federal Reserve, and White House — see future growth far slower than the postwar average. But the economy would be even weaker, and those forecasts gloomier, if not for the shale revolution. Here is Goldman Sachs economist Jan Hatzius:

  … we estimate that the overall impact from the increase in US energy supply on real GDP growth is currently in the range of 0.2-0.3pp per year. Most of this is due to the direct effects from increased energy output and drilling activity, while the spillovers to other industries or via lower household energy bills have been more modest.

So, lots of energy industry investment and output. But a sector story rather than a macro story.

1.) Hatzius goes on to note that lower energy prices have not given a significant boost to energy-intensive industries: ” … output in the most energy-intensive manufacturing industries has in fact grown more slowly than in less energy-intensive ones.”

2.) Nor have US energy intensive industries outperformed energy-intensive industries in other countries. And Goldman hasn’t been able to find much evidence for a significant increase in capital spending in energy-intensive industries” other than chemical manufacturing.

3.) As for the potential boost to consumer spending from lower household energy costs, Hatzius points out that energy outlays as a share of disposable income have finally flattened the past few years. Assuming that the shale revolution get full credit, the bank economist guesstimates “the impact on US GDP growth through this channel may have been in the range of 0.05-0.1 percentage point per year.”

Here is Hatzius’s bottom line on the shale revolution’s total economic impact:

Whether this is a large effect or a small effect is probably in the eye of the beholder. Our view is that it is quite sizable when cumulated over a longer period, even if the spillover effects remain limited and more so if they grow. But it is probably not a first-order issue from the perspective of business cycle forecasters or macro investors who are primarily focused on the quarter-to-quarter and year-to-year fluctuations in business activity.

My bottom line is that America’s myriad economic woes will likely not be solved by the shale revolution. This is counter to what I hear from a lot of folks on the right these days. Too many view fracking as a silver bullet solution that will crank up GDP and create kajillions of high-wage jobs. No more New Normal. America can become North Dakota! Actually, it can’t. The Goldman analysis is a needed cautionary note and reality check that while the shale revolution is a wonderful economic tailwind, it probably isn’t a jetstream. Policymakers should make reasonable assumption about economic impacts and not ignore all the other things — from education reform to deregulation — necessary to create a thriving middle class.

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

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