As one of President Joe Biden’s top economic advisers, I frequently made my way out to the White House North Lawn to give interviews to the media about the state of the U.S. economy. Especially as the pandemic-induced recession faded in the rearview mirror, I was out there hundreds of times touting how the unemployment rate was at 50-year lows on the back of remarkably strong job growth. Inflation was falling and inflation-adjusted pay was rising.

And yet in every single interview, I got the same question: So why aren’t people feeling it? Why so much good data amid so many bad vibes?

In fact, the question was not hard to answer. It comes down to one word, a word that defines the dominant economic challenge with which American families have been struggling for years: affordability. Whether it’s housing, child care, health care, groceries, utilities, insurance, or other costs, significant numbers of Americans have found that these and other critical goods and services are either out of reach or so pricey that, after they’ve paid for them, they don’t have enough money left to even think about getting ahead.

This duality between the data and how people experience the economy is the subject of The Mismeasurement of America, by Gene Ludwig, a former comptroller of the currency during the Clinton administration. Focusing on unemployment, wages, inflation, and the growing economic distance between Americans at the top and the bottom of the income scale, Ludwig argues that the problem is that the numbers I was touting were, if not quite wrong, then “profoundly misleading.” He then develops his own set of numbers, which he argues better explain why people have long felt a lot worse about the economy than you’d glean from the government’s top-line statistics. While Ludwig is right that top-line numbers, all of which are broad averages, fail to present a full picture of how the different income classes are faring, that’s not a “mismeasurement” problem. It instead reflects the impossibility of encompassing in just a few numbers something as complex and disparate as the U.S. economy. A better title for his book might have been “The Incomplete Measurement of America.”

Ludwig’s critique of inflation statistics is particularly germane to the affordability crisis. The Consumer Price Index is an overall metric that averages out the changes in prices faced by 90 percent of the population. (The CPI does not include prices in extremely rural areas, farm households, and religious communities, among other exceptions.) Ludwig reasonably worries, however, that the average obscures important differences in inflation between income groups.

The Bureau of Labor Statistics, which publishes the CPI, has itself been looking into this and they find that from 2005 to 2024, prices rose 66 percent for those in the bottom fifth of the income scale but just 57 percent for those at the top. This disparity is a double disadvantage: Such households face both lower incomes and higher prices. Ludwig’s adjusted CPI, which he calls the “True Living Cost,” or TLC, captures this dynamic by significantly up-weighting in the index the goods and services that dominate the consumption basket of less-well-off households, including housing, health care, food, and child care.

While this is the right way to drill down on the affordability challenges facing low- and middle-income families today, Ludwig misses one of the more important positive price developments of our time. For technology goods, like computers and smartphones, the TLC registers large price increases while the CPI registers the opposite. The CPI has it right, reflecting a rare cost decline that’s actively making us better off. The BLS statisticians adjust for the fact that computers and cell phones are remarkably more powerful than they used to be. Decades ago, it would have cost millions of dollars for a computer to do what a $700 laptop can do today. Adjusted for quality, the cost of such technology has fallen sharply over the years, and this decline has improved consumer welfare. Yet the TLC appears to ignore these quality improvements and somehow has technology costs soaring over time.

For another example of how Ludwig offers an overreaching solution to a real measurement challenge, consider unemployment. Ludwig argues that instead of the 4.3 percent unemployment rate for August reported by the BLS, what he calls the TRU—the “True Rate of Unemployment”—is 24.7 percent. Anyone with even a passing familiarity with the history of unemployment in America will realize that Ludwig has either made a mistake or is aggressively redefining unemployment. The last time unemployment was that high was during the Great Depression.

Ludwig’s “unemployment” rate, however, includes a lot of people who are, in fact, working, both part-timers and low earners. His terminology is thus off, as is his critique of the current measurement system, which is clearly, transparently, and consistently measuring what it says it’s measuring. If you looked for a job and you didn’t find one, you’re unemployed. That simple and intuitive definition has revealed important information about labor market conditions for many decades.

But as Ludwig’s adjustments reveal, there were a lot more underemployed and underpaid people in the American labor force in August than 4.3 percent. That doesn’t make the official unemployment rate wrong or misleading. Though Donald Trump, who recently fired the commissioner of the BLS, might claim otherwise, our statistical agencies continue to rigorously churn out valid, reliable numbers. (Trump doesn’t like that they show the tariffs raising prices and cracks forming in the job market, but that’s actually a testament to their accuracy.) But Ludwig’s metric helps to bridge the gap between what the official jobless numbers say and the struggle that many working Americans go through every day.

Extracting from these weedy details, and recognizing that the current system is not mismeasuring America, Ludwig’s book provides an important bridge between good data and bad vibes. As he shows, in an economy where inequality has been on the rise for decades, where millions are underemployed, where poor people’s inflation rises faster than that of the rich, averages increasingly fail to tell the full economic story.

Of course, many authors, most notably Thomas Piketty in Capital in the Twenty-First Century, have made this point before. But by looking at the problem through the lens of jobs, hours worked, wages paid, the costs of housing (and utilities, such as electricity), child care, health care, and so on, Ludwig’s measurements help to shine a light on a policy agenda to address the affordability crisis. His underemployment rate would come down, for example, if we helped involuntary part-timers move to full-time schedules. (Ludwig would correctly note that such a change would not show up in a lower unemployment rate.) An affordability agenda, which Neale Mahoney and I describe in a new brief from the Stanford Institute for Economic Policy Research, would help make it easier for economically stretched families to afford housing (by making it easier and cheaper to build), child care (through targeted subsidies), and health care (reversing coverage cuts, Medicare buy-in) in ways that would directly feed into Ludwig’s alternate cost-of-living measure.

What we should take from this book, then, is not that America is mismeasured. It’s that the gap between what the top-line numbers report and how folks feel about their economic situation is, in part, a function of the increase in economic inequality, of how far they’ve fallen relative to the average. Should we want to better understand how America is really doing, we must dig deeper into the numbers.

The post Measuring the Vibecession appeared first on Washington Monthly.

As one of President Joe Biden’s top economic advisers, I frequently made my way out to the White House North Lawn to give interviews to the media about the state of the U.S. economy. Especially as the pandemic-induced recession faded in the rearview mirror, I was out there hundreds of times touting how the unemployment rate was at 50-year lows on the back of remarkably strong job growth. Inflation was falling and inflation-adjusted pay was rising.

And yet in every single interview, I got the same question: So why aren’t people feeling it? Why so much good data amid so many bad vibes?

In fact, the question was not hard to answer. It comes down to one word, a word that defines the dominant economic challenge with which American families have been struggling for years: affordability. Whether it’s housing, child care, health care, groceries, utilities, insurance, or other costs, significant numbers of Americans have found that these and other critical goods and services are either out of reach or so pricey that, after they’ve paid for them, they don’t have enough money left to even think about getting ahead.

This duality between the data and how people experience the economy is the subject of The Mismeasurement of America, by Gene Ludwig, a former comptroller of the currency during the Clinton administration. Focusing on unemployment, wages, inflation, and the growing economic distance between Americans at the top and the bottom of the income scale, Ludwig argues that the problem is that the numbers I was touting were, if not quite wrong, then “profoundly misleading.” He then develops his own set of numbers, which he argues better explain why people have long felt a lot worse about the economy than you’d glean from the government’s top-line statistics. While Ludwig is right that top-line numbers, all of which are broad averages, fail to present a full picture of how the different income classes are faring, that’s not a “mismeasurement” problem. It instead reflects the impossibility of encompassing in just a few numbers something as complex and disparate as the U.S. economy. A better title for his book might have been “The Incomplete Measurement of America.”

Ludwig’s critique of inflation statistics is particularly germane to the affordability crisis. The Consumer Price Index is an overall metric that averages out the changes in prices faced by 90 percent of the population. (The CPI does not include prices in extremely rural areas, farm households, and religious communities, among other exceptions.) Ludwig reasonably worries, however, that the average obscures important differences in inflation between income groups.

The Bureau of Labor Statistics, which publishes the CPI, has itself been looking into this and they find that from 2005 to 2024, prices rose 66 percent for those in the bottom fifth of the income scale but just 57 percent for those at the top. This disparity is a double disadvantage: Such households face both lower incomes and higher prices. Ludwig’s adjusted CPI, which he calls the “True Living Cost,” or TLC, captures this dynamic by significantly up-weighting in the index the goods and services that dominate the consumption basket of less-well-off households, including housing, health care, food, and child care.

While this is the right way to drill down on the affordability challenges facing low- and middle-income families today, Ludwig misses one of the more important positive price developments of our time. For technology goods, like computers and smartphones, the TLC registers large price increases while the CPI registers the opposite. The CPI has it right, reflecting a rare cost decline that’s actively making us better off. The BLS statisticians adjust for the fact that computers and cell phones are remarkably more powerful than they used to be. Decades ago, it would have cost millions of dollars for a computer to do what a $700 laptop can do today. Adjusted for quality, the cost of such technology has fallen sharply over the years, and this decline has improved consumer welfare. Yet the TLC appears to ignore these quality improvements and somehow has technology costs soaring over time.

For another example of how Ludwig offers an overreaching solution to a real measurement challenge, consider unemployment. Ludwig argues that instead of the 4.3 percent unemployment rate for August reported by the BLS, what he calls the TRU—the “True Rate of Unemployment”—is 24.7 percent. Anyone with even a passing familiarity with the history of unemployment in America will realize that Ludwig has either made a mistake or is aggressively redefining unemployment. The last time unemployment was that high was during the Great Depression.

Ludwig’s “unemployment” rate, however, includes a lot of people who are, in fact, working, both part-timers and low earners. His terminology is thus off, as is his critique of the current measurement system, which is clearly, transparently, and consistently measuring what it says it’s measuring. If you looked for a job and you didn’t find one, you’re unemployed. That simple and intuitive definition has revealed important information about labor market conditions for many decades.

But as Ludwig’s adjustments reveal, there were a lot more underemployed and underpaid people in the American labor force in August than 4.3 percent. That doesn’t make the official unemployment rate wrong or misleading. Though Donald Trump, who recently fired the commissioner of the BLS, might claim otherwise, our statistical agencies continue to rigorously churn out valid, reliable numbers. (Trump doesn’t like that they show the tariffs raising prices and cracks forming in the job market, but that’s actually a testament to their accuracy.) But Ludwig’s metric helps to bridge the gap between what the official jobless numbers say and the struggle that many working Americans go through every day.

Extracting from these weedy details, and recognizing that the current system is not mismeasuring America, Ludwig’s book provides an important bridge between good data and bad vibes. As he shows, in an economy where inequality has been on the rise for decades, where millions are underemployed, where poor people’s inflation rises faster than that of the rich, averages increasingly fail to tell the full economic story.

Of course, many authors, most notably Thomas Piketty in Capital in the Twenty-First Century, have made this point before. But by looking at the problem through the lens of jobs, hours worked, wages paid, the costs of housing (and utilities, such as electricity), child care, health care, and so on, Ludwig’s measurements help to shine a light on a policy agenda to address the affordability crisis. His underemployment rate would come down, for example, if we helped involuntary part-timers move to full-time schedules. (Ludwig would correctly note that such a change would not show up in a lower unemployment rate.) An affordability agenda, which Neale Mahoney and I describe in a new brief from the Stanford Institute for Economic Policy Research, would help make it easier for economically stretched families to afford housing (by making it easier and cheaper to build), child care (through targeted subsidies), and health care (reversing coverage cuts, Medicare buy-in) in ways that would directly feed into Ludwig’s alternate cost-of-living measure.

What we should take from this book, then, is not that America is mismeasured. It’s that the gap between what the top-line numbers report and how folks feel about their economic situation is, in part, a function of the increase in economic inequality, of how far they’ve fallen relative to the average. Should we want to better understand how America is really doing, we must dig deeper into the numbers.

The post Measuring the Vibecession appeared first on Washington Monthly.

Being mad at Joe Biden is understandable. He should not have run again, and perhaps he should have resigned the presidency. He initially mishandled the inflation spike, giving Donald Trump the opening to argue the economy was better on his watch.

Fault can be found with the Kamala Harris campaign. She didn’t give clear answers to the question of how she would be different than Biden. She was a disciplined campaigner, so much so that some voters found her overly scripted and inauthentic. She could have pushed different economic policies, or better emphasized that ones she had.

For the next four years, Democrats could bicker with each other over these arguments. Or, they could set them aside and focus on what the Biden-Harris administration did right.

Defending the Biden-Harris record is a far more important project than complaining about Biden’s missteps or trashing the Harris presidential campaign.

First, here’s what’s leading the Washington Monthly website:

***

Will Conservative Judges Abide Trump’s Ending Birthright Citizenship?: Legal Affairs Editor Garrett Epps flags a possible shift in opinion by a key conservative federal judge. Click here for the full story.

NATO’s Nervous New World: James D. Zirin reports back from a trip to Europe with the Council on Foreign Relations. Click here for the full story.

The Ted Olson I Knew: Contributing Writer Peter M. Shane remembers the acclaimed conservative attorney who championed the right to same-sex marriage and who died last week at 84. Click here for the full story.

I Was a Washington Monthly Whippersnapper: Marc Novicoff reflects on his journey from Monthly reader to intern to associate editor. Click here for the full story.

***

When Biden peacefully hands the power of the presidency to Trump, he will also be handing Trump a healthy, growing, increasingly affordable economy. The data points of the economy today should be the benchmarks on which we judge what Trump does to the economy.

Trump, of course, is a shameless liar, credit taker, blame shifter, and data manipulator. He will surely start to take credit for the growing economy before being sworn in, and won’t stop taking credit no matter what the data show over the next four years. (In a worst-case scenario, Trump politicizes the civil service so completely that government agencies no longer produce credible economic data.)

Democrats need not allow Trump to distort economic reality without challenge. They can start telling the economic story of the Biden-Harris presidency now, with accurate data.

The political problem with using cold macroeconomic numbers, which regular voters don’t “feel,” is no longer a problem. Democrats are no longer trying to win an election today. They are trying to shape the perceptions of tomorrow.

So let’s check the scoreboard.

The main metric of overall economic health, the annualized real GDP growth rate, most recently–for the third quarter of this year–is a solid 3.0 percent. And that’s reflective of the overall term. Every quarter of the Biden-Harris administration was at least 2.4 percent save for the first half of 2022 and the first quarter of 2024. (This year’s fourth quarter number will not be initially reported until the end of January and not finalized until March.)

As I noted two weeks ago, per capita real disposable income–which captures how much people have in their pockets after accounting for taxes and inflation–from June 2022 to September 2024 has increased by 9 percent. (At the end of January we will have the December 2024 figures.) That shows robust and steady improvement since the unwinding of pandemic relief and the success of inflation-fighting measures.

The unemployment rate, as of October 2024, is 4.1 percent, down from 6.4 percent when Biden was inaugurated. (The December figure will be released on January 10.)

The rate of inflation, as reflected in the year-to-year change to the Consumer Price Index, for October is a reasonable 2.6 percent, almost exactly the same as in January 2020 before the pandemic lockdowns throttled the economy and briefly drove inflation close to zero percent. And today’s number is far lower–about 70 percent lower–than the 9.1 percent rate from June 2022.

The manufacturing job sector performed better during the Biden-Harris administration than the Trump administration, even if we discount the collapse in manufacturing jobs during the pandemic. Trump presided over a net gain of 355,000 manufacturing jobs through March 2020, over 9,000 a month. For Biden-Harris, through October 2024, that’s 685,000, or about 15,000 a month.

You can expect Trump to try to take credit for all the infrastructure projects funded by the Bipartisan Infrastructure Law (BIL), so let’s get the record straight now. A White House fact sheet published last week noted that $568 billion in BIL spending for over 66,000 infrastructure projects has already been announced.

That doesn’t even include the $350 billion for climate-related projects from the Inflation Reduction Act–some of which Trump may try to clawback, although Republicans may have second-thoughts, since more than three-quarters of the climate money is going to Republican-majority congressional districts.

The Trump economic plan puts our currently positive economic trajectory at risk. Mass deportations may disrupt industries and tighten the labor market. Tariffs would jack up prices on imported goods. Both steps threaten to increase inflation, push up interest rates, and slow economic growth.

So clip and save these data points, and be ready to refer to them over the course of the next four years.

Best,

Bill

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The post Don’t Throw the Biden-Harris Record Under the Bus appeared first on Washington Monthly.

Ronald Reagan closed his presidential debate with Jimmy Carter in October 1980, urging Americans to ask themselves if they were better off than they were four years ago. Of course, Reagan, like a sharp prosecutor, knew the answer before he posed the question. Inflation and unemployment were soaring. Perhaps the reason why Republicans aren’t posing that question today is that they, too, know the answer. Based on jobs, incomes, wealth, poverty, and health insurance, Americans are better off today, including inflation. 

No one can argue with President Joe Biden’s job record—more than 9.5 million unemployed Americans found jobs over the past 18 months, and the unemployment rate fell from 6.4 to 3.5 percent.

Whether Americans’ incomes are higher is more complicated, because the pandemic disrupted the economy in so many ways. First, GDP collapsed in 2020, and unemployment soared—followed by massive public spending that extended into Biden’s term in 2021 and helped us recover. But supply problems, especially energy, ignited inflation, and spending, worsened it. While the fast-rising employment has produced a record 14.9 percent surge in overall wage and salary income since Biden took office, how much has inflation eaten away at those unparalleled gains?

For all of the “pain at the pump” stories, the answer is that wages and salaries have kept pace with inflation since Biden took office—and by this measure, most Americans are much better off than before the pandemic hit in 2020, and before he took office in 2021.

The Bureau of Economic Analysis at the Department of Commerce provides the best data on the nation’s earnings. It reports that before adjusting for inflation, Americans earned $11,346 billion in wages and salaries in June 2022, a 14.9 percent jump from $9,872 billion in January 2021 and 16.6 percent more than the $9,734 billion total in February 2020, just before the pandemic. So, take account of inflation’s impact by applying the BEA’s deflator for personal consumption expenditures, a better inflation measure than the Consumer Price Index (CPI). Using that deflator raises the original wage and salary total, now expressed in June 2022 dollars, to $10,673 billion for January 2021 and $10,717 billion for February 2020. Finally, divide the three results by the number of people earning wages and salaries on each date. 

The math may sound complex, but in fact it’s simple: In June 2022, the average working American earned $74,643 in wages and salaries, compared to $74,624 in January 2021 and $70,274 in February 2020. Even with 9.5 million more people working, the average working person earned as much in June, after inflation, as when Biden took office. And compared to just before the pandemic, when employment was comparable to today, the average person earns 6.2 percent even after inflation. The answer to Reagan’s question is “Yes” on wages and salaries as well as jobs, a remarkable achievement given the pandemic. 

A technical note: Other data, especially from the Bureau of Labor Statistics (BLS), suggests that wages and salaries have not kept pace with inflation. Like most economists, I rely on the BEA because the deflator for personal consumption spending is more accurate than the CPI and because the BEA’s data on wages and salaries is more complete than the BLS’s. Both depend on the National Compensation Survey. But the BEA adjusts for gaps in the survey, including people working in private households, employees of nonprofit and religious membership organizations, and so on. The BEA also adjusts the NCS data for COVID-19’s impact on the collection of that data, using analyses by the Federal Reserve and others.

Americans are also significantly wealthier than before Biden took office. The pandemic and the jobs boom were primarily responsible. As the Omicron variant spread, government checks enabled more savings and increased spending that helped drive up employment. According to the Federal Reserve, after inflation the net assets of Americans increased by nearly $2 trillion from the first quarter of 2021—when Biden took office—to the first quarter of 2022. (We exclude the top 1 percent because their assets are notoriously hard to measure.)  

And it’s not the typical case of the rich getting richer. The fastest growth in net assets occurred among low- and moderate-income households. From the first quarter of 2021 to the first quarter of 2022, the inflation-adjusted wealth of households in the lowest income quintile jumped 15.2 percent and just 0.8 percent for those in the top income quintile (again, excluding the top 1 percent).

Under Biden, Americans are better off in other ways, too. The Center on Poverty & Social Policy at Columbia University reports that the poverty rate, which reached 16.1 percent in December 2020, fell sharply under Biden to 14.1 percent by May 2022. It’s the same story on health care coverage: The Department of Health and Human Services reported that from late 2020 to early 2022, the percentage of uninsured Americans fell from 14.5 percent to 11.8 percent among adults (ages 18 to 64) and from 6.4 percent to 3.7 percent among children, both record lows.

If not for the pandemic and the policies required to address it, inflation would be modest—and but for the inflation, Biden would have one of the best records of any postwar president (at least thus far). 

Imagine how Donald Trump would brag if he could tout record job creation, record low poverty, and record health insurance coverage—not to mention wealth gains and wage and salary gains that kept up with inflation. That’s a message that Democrats should carry into the fall campaigns.   

The post Yes, Americans Are Better Off Under Biden appeared first on Washington Monthly.

Rules of thumb are often misleading. Biden administration critics have seized on an axiom that two consecutive quarters of negative Gross Domestic Product growth signal a recession. That’s not a rule followed by any economist I know. Thankfully, the official arbiter of whether and when a recession has begun, the Business Cycle Dating Committee of the National Bureau of Economic Research, applies more nuanced and reliable measures. Those criteria point to continuing growth in the United States.

The critics often misunderstand how the Bureau of Economic Analysis calculates GDP. The BEA is a Commerce Department agency staffed by hundreds of professional economists and statisticians and one I know well since I oversaw it as undersecretary of commerce in the 1990s. This week, the BEA reported that the nation’s GDP, adjusted for inflation, declined at an annual rate of 0.9 percent in the second quarter, following a 1.6 percent decline in the first quarter. That sounds dispiriting, but behind the headline numbers, the basic growth elements provide a more encouraging gauge of the economy’s path and prospects.

Start with employment, which normally contracts in the first two quarters of recent recessions. Over the first six months of the 1990–91 recession, employment fell by 690,000, or 0.6 percent. Similarly, over the first two quarters of the recessions of 2001 and 2007–09, employment fell respectively by 761,000 and 426,000 positions, or 0.6 percent and 0.3 percent.

That’s not happening today. In the first two quarters of 2022, employment grew rapidly, increasing by 2,740,000, or 1.8 percent. That growth even outpaced the best periods of recent expansions: Employment rose 1.4 percent in the first two quarters of 1997, 1 percent in the first two quarters of 2005, 1.1 percent in the first two quarters of 2014, and 1 percent in the first two quarters of 2018.

Nor are there signs that the current job boom is ending. Look at the past six months: Job openings averaged 11,500,00 per month while an average of 6.1 million people were unemployed and looking for work. There are no recessions on record that began with two job openings for every jobless person.

Other fundamental drivers in the economy also don’t point toward a recession. For example, real consumer spending grew 1.8 percent and 1 percent in the first and second quarters. That’s slower than in 2021 but nothing like the first two quarters of the 1990–91 and 2007–09 recessions, when real consumer spending contracted.

This week’s BEA report also shows that real fixed business investment fell at a 0.1 percent rate in the second quarter. However, that’s not yet worrisome, since the slight decline was measured against the first quarter’s big, 10 percent jump in business investment. And measured against the second quarter of 2021, real fixed business investment grew by 3.5 percent.

If there’s a dark cloud on the economy’s horizon, it’s housing investment—covering the construction of new single-family and multi-family homes, residential remodeling, and production of manufactured homes. After growing at a 0.4 percent rate in the first quarter, housing investment responded to rising mortgage rates by falling at a 14 percent clip in the second quarter. To be sure, housing investment is volatile, and we must wait to see if its downward path persists.

If employment, consumption, and business investment don’t point to recession, why did real GDP growth go south in the past two quarters? Three other factors—all less central to economic growth—pulled down the numbers. In the first quarter, the main culprit was a widening trade deficit that technically subtracted 3.23 percent from GDP growth, or twice its overall decline of 1.6 percent. But a worsening trade deficit does not portend a recession. In this case, our purchases of imports increased much faster than those of American exports by people in other countries, so the trade imbalance swelled because the U.S. was better off.

Similarly, the main force driving down GDP in the second quarter was contracting business inventories. Businesses generally finance increases in their inventories. So as interest rates rose in the second quarter, inventory purchases fell sharply, subtracting 2 percent from GDP. Shrinking government deficits in both quarters of this year also lowered GDP, but smaller deficits are usually considered beneficial for the economy even as they technically dampen GDP.

Finally, this year’s accelerating inflation contributed to the drop in real GDP by offsetting a growing share of production. Compared to the first two quarters of 2021, when inflation was lower, real GDP grew at rates of 3.5 percent and 1.6 percent in the first and second quarters of this year.

Inflation and how well the Federal Reserve addresses it are the main factors determining how soon this expansion will end, as it must at some point. Even as the economy’s fundamentals generally remain sound, there is a danger that the Fed’s interest rate hikes may prove too large, dampening demand and employment too much. On the bright side, reducing inflation without triggering a downturn could help extend our healthy growth for several years.

The post Hey, Folks: We’re Not in a Recession appeared first on Washington Monthly.

Labor Day marks the end of the summer, back to school, and a reminder that unions were the folks that brought you the weekend. This year, it should be dedicated to ensuring that unemployed workers receive their benefits on time.

Why? Because the unemployment insurance system, as is, has failed to deliver at least $17 billion in aid, especially impacting Black and brown workers.

In May, we wrote about our proposal for a presidential executive order that would coordinate an interagency effort to ensure that the unemployed get their money quickly. The order would come in conjunction with the $2 billion appropriation from the American Rescue Plan Act that was aimed at improving timeliness, equity, and fraud prevention in current unemployment insurance programs nationwide.

Now, with record job growth that began in early summer, and employers proclaiming a huge worker shortage, one could reasonably ask: Is executive action and urgent attention to the issue still warranted?

Short answer: Yes. Before explaining why, though, let’s review the current U.S. unemployment situation and some initial steps the Biden administration has taken to fix it.

In June, the government’s calculated unemployment rate was 11.1 percent, one of the highest since official records began in 1948, according to the Peterson Institute for International Economics. The number of new people filing unemployment claims every week from March until July of this year hovered around 2 million. As of September, the unemployment rolls had 8.4 million people registered—and that is likely an undercount.

Cyber fraud also continues to impact the unemployment insurance system, which has caused delays for those out of work. ProPublica reported that criminal hackers have stolen at least $80 billion in what could become “one of the largest internet crimes in history.”

A historic unemployment crisis still grips the country even with the economy starting to rebound. And the unemployment insurance system, in many ways, broke during the peak of the pandemic, and there is little evidence to suggest that needed changes have been made. Simply put, many of the people who need help the most have still not been paid.

To be sure, progress is happening under the leadership of Labor Secretary Marty Walsh. The Department of Labor recently announced a $1.1 billion plan to address failed aid delivery and cyber fraud. The agency calls for the creation of small technical teams that will be deployed to states to resolve backlogged claims, identity verification solutions, and grants to states for addressing equity issues. But real gaps remain in the plan, as it did not allocate any money for tech modernization, and $900 million remains unallocated.

While six states have already signed up for the technical teams—including Colorado, Kansas, Nevada, Virginia, Washington, and Wisconsin—it is unclear how the Labor Department plans to scale up the teams from six to 50 states and over what time frame. Further, its plan does not articulate how the learnings from the technical team successes will be incorporated into other areas.

At the same time, the Employment and Training Administration, tasked with implementing those dollars, has no experience managing such a cash infusion, likely leaving its well-qualified staff straining under the demands and having to figure out the best use of limited resources.

That’s why an executive order is still needed—and needed urgently. We believe the order should include establishing cooperation among federal departments and agencies around a federal ID verification system. Such an interagency process would pertain especially to the Department of Labor and the Department of the Treasury, because the latter created the Emergency Rental Assistance Program, which has been plagued with multiple challenges disbursing the aid, similar to the unemployment insurance system.

The executive action should also include a “vaccine reaction benefit” for workers who need to take a post-jab paid sick leave day; this might also incentivize increased vaccinations, something the country sorely needs. At the same time, the order could create a mechanism to ensure that states can leverage federal data to improve unemployment insurance administration through a federal data hub.

The ultimate goal would be for all workers’ legitimate claims to have been paid a year from now, so that next Labor Day, we are celebrating the employed worker, for whom the holiday was intended, rather than needing to dedicate it to the unemployed one.

The post A Labor Day Dedicated to Those Out of Work appeared first on Washington Monthly.

My friend Phillip Longman turned 65 last month. Longtime readers of Phil’s astute political journalism will find some irony in this, because Phil first achieved recognition in the 1980s predicting that the generational divide would soon become America’s most salient political battleground. At the time, he was representing the younger generation; now he’s a card-carrying member of the older one (a circumstance he of course anticipated). In his influential 1985 Atlantic piece, “Justice Between Generations” (later expanded into a book, Born to Pay), Phil put it this way:

The challenge for members of the Baby Boom generation will be not how to meet the demands of their parents but how to provide for their own retirement without putting an impossible economic burden on their children. In the 1960s economists called into question the need for one generation to provide for the future well-being of its descendants. Today the more pertinent question is how much one generation can rightfully borrow from its descendants to subsidize its own consumption.

The answer turns out to be “quite a lot.” In the year that Longman published “Justice Between Generations,” the budget deficit was $212 billion, or about $525 billion in today’s dollars. By the end of this year, the budget deficit is expected to reach $3 trillion—six times what it was back in 1985—only now that’s playing as good news, not bad. That’s because countercyclical deficit spending is expected to yield the fastest economic growth since 1984, when the economy was recovering swiftly from what, at that time, was the worst recession since the Great Depression. Ronald Reagan won a second term that year by declaring morning in America. (Something else that would surprise my 1985 self is that three successive surveys of American historians ranked the Gipper among the top 10 presidents in U.S. history.)

Phil figured in 1985 that by now America would have gotten serious about getting the deficit under control. It did for awhile around the turn of the 21st century, under President Bill Clinton. But Clinton’s successor, President George W. Bush, gleefully pumped the deficit back up. By 2003, the political columnist Ron Brownstein summed up George W. Bush’s policies this way:

Old question: What did you do in the [Iraq] war, Daddy?

New answer: I pocketed a large tax cut, honey.

[Pause.]

And then I passed the bill for the war on to you.

Two decades later, bolstered by a dubious new liberal doctrine called Modern Monetary Theory, America has decided, at least for a little while, to believe, with Dick Cheney, that deficits don’t matter. Ironically, MMT is embraced most fervently not by an older generation fighting to maintain its retirement benefits, but by a younger generation that’s understandably impatient to expand government in new directions yet doesn’t want to raise taxes on anybody who might conceivably vote Democratic. (See my earlier piece, “Walter Mondale, Martin Buber, and the 1984 convention.”)

For all that, Phil was right that a generational split would define American politics. It just didn’t turn out to be a fight over Medicare and Social Security benefits. It turned out to be a fight about everything else.

The first tangible evidence that Americans were dividing into warring generational tribes was the rise of the anti-government Tea Party a decade ago. To an extent that’s never been appreciated fully, the Tea Party was the paradoxical result of a triumphant welfare state. Its activists, Theda Skocpol and Vanessa Williamson documented in The Tea Party and the Remaking of Republican Conservatism, skewed older and were vigorously opposed to Medicare and Social Security cuts. Unlike John Birch Society conservatives a generation earlier, Tea Partiers weren’t opposed to government spending on the elderly. They were just opposed to all other government spending (except on defense). The blessings of the welfare state freed them to dedicate their retirement to dismantling it for the undeserving, defined as everybody else.

The Tea Party begat Trumpism, an even more reactionary movement that skewed older and marked the decisive gerontocratic takeover of American politics. As I’ve argued elsewhere, gerontocracy is not merely a matter of America’s top leaders being older than the comically doddering Soviet Politburo circa 1982, though that’s certainly true and grows more true by the hour. (Our last two presidents were the oldest we’ve ever had; the average age of a U.S. senator exceeds 64.) More significantly, it’s a matter of voters getting older through the combined effect of an aging Baby Boom and the much higher turnout of elderly Americans. Phil Keisling, former secretary of state in Oregon and a leading vote-by-mail evangelist, estimates, based on recent Census numbers, that voters 65 and older made up nearly 26 percent of those who cast ballots in 2020, up from about 24 percent in 2016. If Trump hadn’t worked so energetically against his own interest to persuade the faithful not to vote by mail, but instead had encouraged them to do so, it isn’t inconceivable he’d have won.

Today the New York Times reports another generational fault line, between people in their 50s and older forced into early retirement, and younger workers so confident of their employability that they’re quitting their jobs in droves. The Times story quotes Teresa Ghilarducci, an economics professor at the New School for Social Research, saying we haven’t seen a faster wave of departures from the workforce since the Great Recession. Some of these people are affluent and retiring voluntarily on 401(k)s that fattened during the Covid lockdown, but most are being pushed out. According to Ghilarducci, among people with incomes at or below the national median, 55 percent of current retirements are involuntary. Boomers without a college degree are twice as likely to be retired as those who have one. The fight Phil Longman predicted was a fight over retirement. But the real fight turns out to be over not retiring—about elderly people’s struggles to remain in the workforce.

All this is happening in the context of a longer-term trend (more in tune with Phil’s 1985 projections) in which the share of Americans over 65 who still work is 50 percent higher than it was 20 years ago. But that only makes these new pressures to retire more jarring.

That’s bound to have political consequences, and to deepen political divisions between generations. According to a Fed survey cited by the Times, the probability of working past age 67 is about 33 percent, lower than it was as recently as last November. Yet people are living older and staying healthy and employable well past 67. Meanwhile, the government so despised by today’s Republicans—56 percent of whom are age 50 or older—just gets older and older. The phenomenon is hardly limited to Democrats, but at the moment Democrats control the White House (Joe Biden, 78), the House (Nancy Pelosi, 81), and the Senate (Chuck Schumer, a comparatively sprightly 70). The rules that apply to most aging workers do not seem to apply to these people, and for the involuntarily retired that’s liable to sting.

Fully 21 percent of all charges filed with the Equal Employment Opportunity Commission last year concerned age discrimination. That’s a smaller proportion than those concerning race (33 percent) and sex (32 percent), but not so much smaller that it explains society’s indifference. Employment discrimination based on age is risky from a legal point of view, but it carries virtually no social sanction, and when liberals decry the workplace’s commitment to diversity they seldom include age. If older people skewed less conservative, perhaps we’d see more of a fuss.

Because older people do skew conservative, involuntary retirement will I think deepen the generational political divide whose emergence Phil predicted correctly, if not its eventual form. A logical response would be political pressure to end age discrimination. But that won’t likely happen, because that’s a liberal response, and today’s elderly aren’t liberal. Instead, I’d expect the inchoate conservative rage that drives Trumpism to intensify, with more ethnic scapegoating, including more overt racism, and more resentment of the liberal professional-class “cultural elite.” Having more elderly people with nothing to do but practice reactionary politics while they collect Social Security (all the while denying they’re on the dole) seems a very plausible future. Because the elderly already are so dominant within the electorate, and because demographic trends will make them more so, the current liberal moment could be over within the blink of an eye.

This piece originally appeared on Backbencher, the author’s Substack site. 

The post The Unemployed Elderly Are a Dangerous Political Force. Here’s Why. appeared first on Washington Monthly.

With kids starting to go back to in-person learning and a timeline for everyone to get vaccinated announced, it appears we’re edging toward pre-pandemic life. Not so much for the tens of millions of Americas who were laid off due to the pandemic and are, incredibly, still waiting for their first unemployment checks to arrive.

It is helpful to understand the specifics that underpin this problem. Sophisticated cyber-crime rings and antiquated computer systems have combined to disrupt aid to workers.

We have a plan for that: A presidential executive order that would coordinate an interagency effort among the Department of Labor, the Office of Management and Budget, and the U.S. Digital Service, deploying skills and money to states to ensure the unemployed get their money quickly and safely.

The cyber fraud problem in the unemployment insurance system is real. Syndicated cyber thieves have looted more than $60 billion according to a Department of Labor Inspector General report issued in February. There’s a conservative narrative that workers lay in a hammock and lie about not finding work to collect benefits. That’s not true and that’s not what’s happening here.

Sophisticated cyber-crime rings are doing a virtual hold up on the UI bank. Workers have seen their bank accounts frozen. In response, state labor agencies imposed extra fraud prevention requirements on applicants. These requirements make it difficult for workers to prove their identity, leading to aid becoming ever more backlogged.

While there is no official statistic on how many workers qualify for benefits and are not receiving aid, an estimate can be calculated using data from the Century Foundation and research by University of Illinois Professor Eliza Forsythe: between June 2020 to March 2021, 1.2 million workers fit this category every month. This could mean more than $17 billion in aid has not been pushed out the door to help workers and the economy recover. With the Covid-19 recession disproportionately impacting minority communities, the delays further put them on an economic precipice.

Though the Biden administration inherited this mess from President Trump, its American Rescue Plan allocated $2 billion for technical upgrades to the unemployment insurance system. This White House and Democratic majorities in Congress should be applauded. But more needs to be done.

House Speaker Nancy Pelosi, Democratic Senator Diane Feinstein, and Democratic Senator Alex Padilla, all from California, have called for a federal task force led by the Department of Labor to work with states to stop the fraud.

Democratic Senator Ron Wyden of Oregon has written legislation to reform the unemployment system with resources to upgrade the technical capability of state labor departments.

Other ideas, in addition to the ones above, could include creating a strike force to work with states to resolve backlogged claims, modeled after the one established in California by Governor Newsom that was given 45 days to draft a plan addressing the claims backlog caused by the pandemic. Such a strike force at the federal level would target resources to help states quickly verify claimant identity to accelerate claim processing and establish a unified national application.

The unemployment insurance system is rickety but it still delivered $637 billion in aid to workers, so there is a foundation to build solutions upon. The Day One Project, an organization that is supporting actionable policy ideas for the new administration published our plan calling for presidential action on this issue in October 2020.

No one single agency alone can solve UI cyber-crime, ensure the millions denied unemployment insurance aid every month receive their benefits, and deliver the missing billions in aid. It will require a multi-agency coordinated response—and that can only come from a presidential executive order. A model for the unemployment insurance effort could be based on the executive order Biden signed April 26 that created the “White House Task Force on Worker Organizing and Empowerment,” marshaling federal agencies to build union membership. Let’s hope President Biden recognizes his vision not only requires bold and broad strokes like the American Rescue Plan, but smaller ones too that will make all the difference for unemployed workers continuing to face a pandemic winter this spring.

The post There’s a Huge Problem Getting Aid to the Unemployed appeared first on Washington Monthly.

The University of Chicago has produced a series of excellent studies during the COVID-19 crisis documenting the impact of the pandemic, and of the initial legislative response to the pandemic, on the unemployed.

Conservatives responded enthusiastically to a May report that found the typical unemployed worker was receiving, thanks to the $600 weekly add-on to unemployment benefits included in the CARES Act, 134 percent of his or her previous wages. That you could make more money collecting unemployment than by working was, Republican members of Congress generally agreed, a crime against nature, though they weren’t inclined to resolve it by increasing the $7.25 hourly minimum wage. Republican Senator Lindsey Graham, of South Carolina, said the weekly add-on—which ended up going out to one-quarter of all working-age people in America—would be extended past its July 31 expiration date “over our dead bodies … We’ve got to stop this. You cannot turn on the economy, until you get this aberration in the law fixed.”

As I’ve explained before, Congress agreed to $600 as the right amount for the add-on because that was how much it would take to bring an unemployed worker earning at the median up to the amount he or she had earned in wages before the COVID-19 emergency. But since the group put out of work by virus skewed poorer than the median worker—lots of people working in restaurants and hotels, not so many working at law firms—the result was a social experiment in which the typical person collecting unemployment during this period got paid more for not working than for working. The Congressional Budget Office projected that, were this madness to continue another six months, five-sixths of all workers collecting unemployment would wind up getting paid more for not working than they got paid for working. Never mind that for a lot of workers, not working was a pretty good strategy to avoid contracting a disease that’s already killed nearly half a million Americans, especially in the absence of any meaningful enforcement of federal worker-safety regulations.

Graham and Co. intimidated the Democrats into backing away from the $600 weekly benefit. Initially, the cowed Democrats offered to begin phasing out the $600 sweetener as unemployment fell in any given state below 11 percent, as it has by now everywhere. Had the compromise been enacted, Hawaii, which has the nation’s highest unemployment rate (9.3 percent), would be down to $400, and more than half the states would be receiving no add-on unemployment benefit at all. The Republicans who then controlled the White House, the Senate, and the House, refused the offer, and so the weekly add-on expired (though President Trump extended, haphazardly and through administrative action, a $300 weekly add-on, in deference to the coming election).

Now Democrats control the Senate, albeit by the slenderest possible margin, and the White House, and they’re offering a $400 weekly add-on in their latest coronavirus bill. Rather than campaign last fall mainly on giving unemployed people a bigger cushion, they campaigned mainly on sending a single $2,000 check to all sorts of people who didn’t need it. Consequently, the new coronavirus bill also includes a $1,400 supplement to the $600 check that Congress sent households in December. There is a means test, but it isn’t very strict. The $1,400 benefit starts phasing out when an individual tax filer’s income reaches $75,000 and a joint filer’s income reaches $150,000; a couple can earn $200,000 and still receive some stimulus cash. Whether the recipient is unemployed is taken into account not at all.

The Biden administration has been looking for a way to compromise on the bill, mostly to keep Sen. Joe Manchin from defecting. But the Republican counter-offer is pretty stingy, and I presume there are no conservatives willing to trade at least some of that $1,400 to bring the weekly unemployment add-on back up to $600. That is a shame, because (as I noted last month in the New Republic) that would be a much better policy. How much better is documented by the latest study from the same University of Chicago group that gave you May’s research about the $600 benefit’s 134 percent median replacement rate.

That May study was followed by a number of studies that showed that, even when being unemployed paid better than going back to work, the rate at which people went back to work was largely unaffected. Now the University of Chicago team has weighed in on that question in a new study, the gist of which is, “Timothy Noah is entirely right that the Democrats’ COVID-19 bill is poorly designed, and it’s real a shame nobody’s willing to listen.”

The new study says that, pace Lindsey Graham, the economic effect of the $600 weekly unemployment sweetener during its brief life from April through July was to increase rather than decrease employment, because the $263 billion stimulus it provided the economy greatly outweighed the quite minimal effect it had on whether unemployed people went back to work. The $600 benefit boosted total U.S. spending between 2 and 2.6 percent, which is quite a lot of bang for the buck, and decreased employment by only 0.2 to 0.4 percent. “The job search disincentive effect,” the authors concluded,

is an order of magnitude smaller than would have been expected based on models calibrated to pre-pandemic behavior… Our most conservative partial equilibrium estimates imply that total employment was actually increased as a result of the supplement as long as $453,000 in additional spending translates into at least one additional job.

The $1,400 that Democrats want to send out to U.S. households more or less indiscriminately is the way the federal government typically responds to recessions. The federal government also, of course, typically expands unemployment benefits during recessions, though not previously on anything like the scale during the pandemic. These more “targeted transfers,” the new study notes, have always generated more spending, which is what’s needed during a recession. The expanded unemployment benefits under COVID-19, including the $600 benefit, increased spending to an extraordinary degree. Unemployed households increased their spending not only in absolute terms, but also relative to employed households.

What this adds up to is that if the economy requires stimulus, the best way to provide it is through very generous unemployment benefits. A $1400 check is nice, but to a family that’s in trouble it won’t help much and to a family that’s not in trouble it’s a windfall likely to be tucked away in some retirement or college savings account. COVID-19 is hurting the economy mainly by putting people out of work. I can’t understand why helping those people is not the first priority.

The post Can We Please Restore the Weekly Unemployment Add-on to the Full $600? appeared first on Washington Monthly.

April’s 14.7 percent unemployment rate, announced by the Labor Department last Friday, is awful by any standard. The official tally shows that unemployment increased by 15,938,000 people last month—to 23,078,000 overall—resulting in the highest jobless rate since the Great Depression.

As depressing as that may be, it’s not the full story. The Labor Department also reported Friday that the number of employed Americans fell by 22,369,000 people in April. If you reconcile the gap between 22,369,000 and 15,938,000, you’ll find that the real unemployment rate is much worse. The actual unemployment rate for April was at least 18.6 percent.

The erroneous reporting is not part of a conspiracy. The Census Bureau collects the data as part of its monthly Current Population Survey; the Bureau of Labor Statistics (BLS) then analyzes the findings.  But when layoffs skyrocket suddenly—as they have since the COVID-19 Pandemic took off—the survey’s categories and the terms the BLS uses to interpret the results produce a huge underestimate of real unemployment.

One major issue involves how the Census survey and BLS analysts count people who were furloughed from their jobs in April. Normally, the BLS rules say that anyone laid off temporarily does not count as unemployed. In March, BLS modified that rule by holding that individuals working for a business that was closed by the pandemic could be counted as either on temporary furlough or unemployed. Workers are therefore categorized based on how they described their work situation to the Census surveyors.  Publicly, BLS would like to have it both ways:  It reported that 18,063,000 Americans were “unemployed on temporary layoff” in April without saying how many of them it counted as unemployed.

We can make a reasonable estimate.  A recent Washington Post poll found that 77 percent of people laid off recently expect to return to their jobs, so they probably were not counted as unemployed under the current BLS rule.  Based on this finding, the BLS counted the other 23 percent—4,154,490 of those now furloughed—as unemployed.

Yet many of the other 13,085,510 furloughed workers who expect to get their old jobs back will be disappointed. A new study from the University of Chicago projects that 42 percent of recent layoffs will be permanent. Those findings suggest that 42 percent of the 18,063,000 workers furloughed in April—7,586,460 rather than 4,154,490—actually were laid off permanently. If that’s correct, BLS should add another 3,431,970 Americans to those officially counted as unemployed last month.

Another big problem with the April unemployment report involves how BLS decides who has left the labor force. Anyone not working who tells the Census surveyor that they were not “available” to take a new job or did not actively try to find one during the preceding four weeks is not considered to be part of the labor force, and therefore does not count as unemployed. Most months, the size of the labor force changes little, because new people entering it largely offset new retirees, people with new disabilities, and those who simply stop working. In February, the labor force shrank by 60,000 people.

The pandemic has changed that: BLS calculates that the labor force contracted by an astounding 6,432,000 people in April, including 4,252,000 Americans who wanted to work. As with those on furlough, the huge and abrupt labor market changes driven by the pandemic overwhelm BLS’s normal categories; and many of those seen as dropping out of the labor force should be counted as unemployed.

In fact, millions of Americans were not “available” for work in April because they were caring for children whose schools were closed—and millions of people didn’t look for new jobs because the avalanche of layoffs made a job search pointless. They fit a textbook definition of individuals whom the BLS excludes from the ranks of the labor force, and so do not count as unemployed. BLS further notes that 23 percent of those excluded from the labor force are  “marginally attached,” meaning they want a job but didn’t look for one, most likely because they have family or health issues or don’t believe any jobs are available. At a minimum, 23 percent of the 6,432,000 people newly excluded from the labor force in April also should be added to the list of the unemployed.

Finally, the Census survey asked people about their job status–during the course of one week—from April 12 to April 19. This technicality usually doesn’t matter much, because unemployment normally changes little in any month, much less in its last week. Again, the pandemic changed that.  We know that during the week following April 1, nearly 3.5 million more Americans filed for unemployment benefits.

Add up these three changes, and unemployment in April increased by at least 6,075,399 more than the 15,938,000 officially reported by BLS, jumping by 22,013,399 to a total of 29,153,399 Americans, for a real unemployment rate of at least 18.6 percent.

Throughout this pandemic, President Trump has tried to gaslight the American people by denying, wishing away, and minimalizing the COVID-19 threat and its mounting spread. Failing at this, his administration now insists that an economic recovery is right around the corner. Like the virus, however, Trump’s PR campaign is already colliding with a reality plainly and painfully evident to anyone willing to look at it.

The post The Real Unemployment Rate Is Worse Than Trump Will Tell Us appeared first on Washington Monthly.