LATimes: Dismal jobs report shows unemployment rising to 9.2%

[techboy]

Is this better?

It's a start... A lot of that seems to have happened in the 90's, though, when the internet boom carried the economy. Now adjust for that.

[HailGreen28]

It's a start... A lot of that seems to have happened in the 90's, though, when the internet boom carried the economy. Now adjust for that.

What do you mean by "a lot of that"? Looks like a fairly steady and uniform climb before, during and after the 90's. Causes are where we get down to the devils (or angels) in the details. But what do you mean by "A lot of that seems to have happened in the 90's"?

[Hubbs]

Thanks for taking the time to explain all that, Hubbs. That was clear and it helps a lot. I guess there's no real way to determine the amount of damage each of those factors you listed had in crippling the economy, is there? It seems like knowing how much burden each element added to the recession would go a long way in helping us figure out the right balance of reform to implement right now...tax hikes, spending cuts, how much of each, which kinds of cuts or taxes. If we know how we wound it up, we'd better know how to unwind it, right?

Also, I'm curious about your thoughts regarding the virtual elimination of capital gains taxes on homes starting in 1997. Did that shift investment heavily to housing and, if so, did that drain investment money from more economically beneficial types of investments? Would a repeal of the 1997 law help reinvigorate business investment and have a moderating effect on the housing-as-commodity mentality?

It's not possible to determine the exact impact of any given policy down to the cent. It is, in my opinion, quite possible to determine the general impact of many policies. To continue my trial analogy, I believe that I could make quite a convincing case about exactly how we got "wound up" in the first place. That doesn't mean the unwinding will be any easier. In fact, according to my analysis, the only choices regarding how to "unwind" our system are all painful. It's simply a matter of which pain will hurt the most.

Anyway, as far as the 1997 law, no, I don't think it had a major impact. Here are the factors that I would argue actually did have a major impact:

- Artificially low interest rates, which created negative real interest rates, which in turn allowed people to believe that they could afford much more home than they could actually afford, because interest payments seemed ridiculously small

- The elimination of much of the facade of leverage ratio requirements for financial institutions, which allowed those institutions to lever up 30:1, meaning that a real estate contraction could wipe them all out

- The joke that was the AAA ratings for the pools of bad mortgages that we sold as good mortgages

- Fraud. Miles and miles of fraud.

As for repealing the law, no, I don't think it would make much of a difference. Investing in the ability to flip real estate is quite different than investing in a business. Plus, the "easy money" is out of real estate in this point. If someone is still betting on housing, they probably have a reason that won't be changed by the tax code.

ASF and SnyderShrugged, I'd guess that the right kind of tax cuts and the right kind of federal spending could go a long way to creating jobs.

...only by creating even more federal debt.

In short, I think is makes at least a little bit of sense to argue that a higher tax rate on corporate profits and/or very high paychecks, encourages companies to re-invest their profits, whereas low taxes encourage people to "cash out" their profits as soon as they're made.

Right, which supports the notion that a very beneficial change to our tax code would be a major reduction in taxes on businesses, combined with higher taxes on wealthy individuals to try to achieve deficit neutrality.

[techboy]

What do you mean by "a lot of that"? Looks like a fairly steady and uniform climb before, during and after the 90's.. But what do you mean by "A lot of that seems to have happened in the 90's"?

I mean that " Causes are where we get down to the devils (or angels) in the details". Eyeballing a graph doesn't do it for me. More sophisticated analysis is needed to tease out things like this.

Besides, the raw eyeballing you seem to be after doesn't seem to offer much difference, once inflation adjusted, between the 50s and 80s and the 80s and today. I guess LBJ's policies were as good as Reagan's? :whoknows:

[NoCalMike]

During that chart though, I would like to see another line on there that shows where real wages were trending. Correct me if I am wrong (cause I might be I admit it) but GDP has nothing to do with how much money or wages people are making, it has to do basically with productivity, how much product is being pushed.

Real wages have been falling, for quite some time now. Our economy has been transitioning from a manufacturing based economy to a service-based economy, there is not nearly the same wage and growth potential in the service industry as a whole, however while wages are dropping, inflation continues to be on the rise.

In other words, like has been repeated. 30 years of Reaganomics has been GREAT for the Top 2% who are reaping the benefits, but horrible for the rest of the working class.

[techboy]

During that chart though, I would like to see another line on there that shows where real wages were trending.

Okey dokey. From the St. Louis Fed:

[NoCalMike]

Ok can we get a further break down of what income groups the wages are going up or down for? Is the chart representing average salaries across the board? (minus farming business) In other words, if CEO pay has gone up 300% in the last 30 years, is that going to skew the numbers and make them look great, even though that 300% increase in wages/salary really only represents a small minority of folks?

[techboy]

Ok can we get a further break down of what income groups the wages are going up or down for?

Your surprise is likely due to the fact that the chart I posted is real compensation, which includes benefits such as health care and overtime pay, while most of the charts floating around on the internet are real wages, i.e. just pay.

The St. Louis Fed discusses it briefly here:

The chart compares labor productivity in the nonfarm business sector to two measures of real labor compensation: average hourly earnings for non-supervisory and production workers (AHE) in the upper panel, and total compensation per hour in the lower panel. AHE measures the typical, scheduled hourly wage plus legally required benefits but excludes variable pay—overtime, bonuses, shift premiums, and employer benefits. Total compensation, in contrast, includes variable pay. Increases in these compensation series track productivity quite closely through 1999. Beginning in 2000, however, AHE falls increasingly below productivity and increases little after 2003. Total compensation remains close until 2003, but does not follow 2003’s uptick in productivity growth (behavior which remains a topic for future research).

Economists long have noted that focusing on AHE rather than total compensation yields an inaccurate picture of labor compensation due to the omission from AHE of employer-provided benefits. The trend toward increased use of variable pay provides

an additional reason for focusing on broader compensation measures.

So it's probably a more accurate measure. Notice, incidentally, that although that chart in that particular article is only from 1996 on, it shows the "non-supervisory and production workers" real compensation going up, so that addresses your concerns about who it covers.

James Hamilton at UC San Diego wrote about it in 2005:

How concerned should we be about the downward trend in real wages?

Average hourly earnings have failed to keep up with inflation over the last two years, a fact noted with concern recently by Deinonychus Antirrhopus, Economic Policy Institute, Sirotablog, and Brad DeLong, among others.

Source: Macroblog real_earnings.gif

Dave Altig notes that this is in fact a continuation of a trend going back to 1974 that had been temporarily reversed in the late 1990's, as seen in the graph at the right. However, Dave also points out that although wages have fallen behind inflation for over a generation now, other nonwage components of worker compensation, particularly health care benefits, have grown more quickly than inflation. The graph below shows that in fact total compensation shows a steady long-term upward trend relative to inflation that has if anything accelerated in recent years.

He then raises a couple of areas of concern about this:

But I worry whether other factors might be involved in the rising share of non-wage compensation. I wonder whether the people whose decisions determine this share really understand that the basic question is whether a given dollar of value-added that is produced by the worker goes to the employee in the form of salary or perks. I realize that I'm venturing out of economists' usual rational-decision-maker framework in making such a claim. But let me give you two examples.

The first is based on observation of the political process. For example, one big component of nonsalary compensation is employers' contribution to Social Security. Why did Congress set up a system in which, supposedly, the worker makes half the contribution and the employer makes a matching contribution? Economic theory suggests that it should make no difference who allegedly pays the payroll tax. The firm will look at the cost it pays for labor (which includes its Social Security contribution) in deciding how many workers it is profitable to hire, while the worker looks at what she personally gets paid (which excludes her Social Security contribution) in deciding on where and how much to work. The final outcome should be the same regardless of which party delivers the taxes to the government. And yet, the fact that the Social Security payment system is set up in the way it is suggests that there are at least some people who see the "employer contribution" and "employee contribution" as not coming out of one and the same pile of money.

The second reason I wonder about the efficiency of the size of current nonwage compensation is based on observation of the faculty benefits committee at UCSD. It seems there is a universal assumption of the noneconomists on this committee that the more benefits we get, the better off we are, as if the money were coming out of nowhere and had no implications for the budget for salaries. If professors act this way, I'm inclined to entertain the possibility that those who negotiate contracts for labor unions may have a similar mindset.

Finally, before we conclude that the solid trend in total compensation means there's nothing to worry about in the declining trend in real wages, there is the difficult question of whether the growing non-wage compensation is acting to reduce or to exacerbate the rising gap between the wages of the top 10% and bottom 10% of earners; see for example the concerns raised by Kash at Angry Bear.

Should we worry about the declining trend in real wages? At least a little, I should think.

[twa]

It seems there is a universal assumption of the noneconomists on this committee that the more benefits we get, the better off we are, as if the money were coming out of nowhere and had no implications for the budget for salaries. If professors act this way, I'm inclined to entertain the possibility that those who negotiate contracts for labor unions may have a similar mindset.

I do see a lot of this mindset,and not just from unions

[SnyderShrugged]

It seems there is a universal assumption of the noneconomists on this committee that the more benefits we get, the better off we are, as if the money were coming out of nowhere and had no implications for the budget for salaries. If professors act this way, I'm inclined to entertain the possibility that those who negotiate contracts for labor unions may have a similar mindset.

I do see a lot of this mindset,and not just from unions

yeah, its nearly universal failure of rational thought at this point.

[Larry]

Anyway, as far as the 1997 law, no, I don't think it had a major impact. Here are the factors that I would argue actually did have a major impact:

- Artificially low interest rates, which created negative real interest rates, which in turn allowed people to believe that they could afford much more home than they could actually afford, because interest payments seemed ridiculously small

- The elimination of much of the facade of leverage ratio requirements for financial institutions, which allowed those institutions to lever up 30:1, meaning that a real estate contraction could wipe them all out

- The joke that was the AAA ratings for the pools of bad mortgages that we sold as good mortgages

- Fraud. Miles and miles of fraud.

Actually, I would claim that the #1 cause, maybe 90% of the cause, of the housing bubble, was the belief (hell, the absolute religious certainty) that real estate prices never go down. Which, in turn, led to

1) Borrowers being perfectly content "buy" property with zero down, and with "teaser rate" mortgages where the borrower knows that 5-10 years down the road, his mortgage payment is going to double, and he won't be able to pay it. But heck, think what the house will be worth in 5-10 years!

2) Lenders being perfectly willing to write such loans, knowing that the borrower won't be able to make the payments in 5-10 years, because heck, think what the house will be worth in 5-10 years!

Both parties absolutely believed that it was impossible for them to lose money on their investment.

[NavyDave]

Actually, I would claim that the #1 cause, maybe 90% of the cause, of the housing bubble, was the belief (hell, the absolute religious certainty) that real estate prices never go down. Which, in turn, led to

1) Borrowers being perfectly content "buy" property with zero down, and with "teaser rate" mortgages where the borrower knows that 5-10 years down the road, his mortgage payment is going to double, and he won't be able to pay it. But heck, think what the house will be worth in 5-10 years!

2) Lenders being perfectly willing to write such loans, knowing that the borrower won't be able to make the payments in 5-10 years, because heck, think what the house will be worth in 5-10 years!

Both parties absolutely believed that it was impossible for them to lose money on their investment.

This also Happened during the S & L loan scandal back in the Day.

Congress forcing lenders to loan money to people who had no business getting money to buy a house and some lenders taking advantage of this foolishness had a large part of Housing bubble bursting.

[DRSmith]

I love this blame the congress forcing banks to loand people money which is complete bunk but is repeated because Fox and talk radio said it was so

[oisn1]

It seems there is a universal assumption of the noneconomists on this committee that the more benefits we get, the better off we are, as if the money were coming out of nowhere and had no implications for the budget for salaries. If professors act this way, I'm inclined to entertain the possibility that those who negotiate contracts for labor unions may have a similar mindset.

I do see a lot of this mindset,and not just from unions

Ummmm, that assumption is true. People are much happier with healthcare, better wages, daycares for their children, longer vacations, etc.

Now obviously, it is important to balance benefits with profit and debt, but the idea of worker benefits and rights is a staple of a strong economy. Labor unions are always going to fight for more benefits, up until the company doesn't make a profit. Companies are going to fight benefits and try to keep as much profit as they can.

I'm unsure why this is bad or controversial. Unless you want to go back to the 1800s when workers had benefits.

[Larry]

Congress forcing lenders to loan money to people who had no business getting money to buy a house and some lenders taking advantage of this foolishness had a large part of Housing bubble bursting.

Keep pushing that lie.

[DRSmith]

Ummmm, that assumption is true. People are much happier with healthcare, better wages, daycares for their children, longer vacations, etc.

Now obviously, it is important to balance benefits with profit and debt, but the idea of worker benefits and rights is a staple of a strong economy. Labor unions are always going to fight for more benefits, up until the company doesn't make a profit. Companies are going to fight benefits and try to keep as much profit as they can.

I'm unsure why this is bad or controversial. Unless you want to go back to the 1800s when workers had benefits.

No a smart union will want a company to continue to make profits but a strong economy is not based on a super rich class but rather a strong middle class who is able to look after their famalies provide for them

[twa]

Ummmm, that assumption is true. People are much happier with healthcare, better wages, daycares for their children, longer vacations, etc.

Now obviously, it is important to balance benefits with profit and debt.

of course people are glad to have more of the above,but it comes with a cost....the balance is key and gets short shift far too much.

[deejaydana]

Keep pushing that lie.

That's not a lie in the least Larry. The roots of the housing crisis can be dated back to the early 1990's when the gov't in their infinite wisdom decided that minorities were getting the shaft and that lending standards needed to be relaxed. You can find the answers & documentation on this if you're willing to look.

[Madison Redskin]

That's not a lie in the least Larry. The roots of the housing crisis can be dated back to the early 1990's when the gov't in their infinite wisdom decided that minorities were getting the shaft and that lending standards needed to be relaxed. You can find the answers & documentation on this if you're willing to look.

A large number of people, both in the private and public sector, helped contribute to the conditions that led to the housing crisis. Please stop pretending it's all the gubment's fault.

[NoCalMike]

The entire "government forced banks to lend..." is bunk. Lets entertain that idea for a quick second. Even if absolutely 100% true, it doesn't explain the fact that over 75% of the folks who were saddled up with sub-prime loan, actually qualified for the far less risky and financially damaging loans, but predatory lending practices buried this and instead got people wrapped up in the bad loans in hopes of making way more off the interest.

Just more "blame the victim" rhetoric. It couldn't have possibly been the bankers, wall street fat cats that understand and know the numbers game. Nope, not at all...never. It is the working poor and the government,always....

[deejaydana]

A large number of people, both in the private and public sector, helped contribute to the conditions that led to the housing crisis. Please stop pretending it's all the gubment's fault.

Where oh where Over-Reaction Boy, did I state it was ALL the government's fault ?

There is much more blame that can be laid at Fannie Mae's feet then has ever really been let out, this hopefully will come with time but Larry saying it's a "lie" is either dishonest or more likely just something he believes because he, like you maybe, have not bothered to read up on the topic.

---------- Post added July-12th-2011 at 09:39 AM ----------

The entire "government forced banks to lend..." is bunk. Lets entertain that idea for a quick second. Even if absolutely 100% true, it doesn't explain the fact that over 75% of the folks who were saddled up with sub-prime loan, actually qualified for the far less risky and financially damaging loans, but predatory lending practices buried this and instead got people wrapped up in the bad loans in hopes of making way more off the interest.

Just more "blame the victim" rhetoric. It couldn't have possibly been the bankers, wall street fat cats that understand and know the numbers game. Nope, not at all...never. It is the working poor and the government,always....

[Madison Redskin]

Where oh where Over-Reaction Boy, did I state it was ALL the government's fault ?

You said the roots of the housing crisis were in the government attempts to loosen lending restrictions with respect to mortgages. Maybe you and I have a different idea as to what "roots" means when you're talking about the cause of a problem.

[deejaydana]

You said the roots of the housing crisis were in the government attempts to loosen lending restrictions with respect to mortgages. Maybe you and I have a different idea as to what "roots" means when you're talking about the cause of a problem.

There is much more blame, with Fannie Mae at its center, then you might be aware of. Of course the gov't now just wants to move on but if you could read up on it and specifically 2 things, Jim Johnson's involvement as CEO and the deliberate efforts made within Fannie, to significantly relax lending standards. Let me know what you think once you've read up on this. People like Christopher Dodd, who enriched himself at taxpayer expense, should be behind bars right now. It's disgusting.

[PleaseBlitz]

Where oh where Over-Reaction Boy, did I state it was ALL the government's fault ?

There is much more blame that can be laid at Fannie Mae's feet then has ever really been let out, this hopefully will come with time but Larry saying it's a "lie" is either dishonest or more likely just something he believes because he, like you maybe, have not bothered to read up on the topic.

There is a HUGE amount of blame that should be laid at "the people's" feet, but you will never ever hear anyone say that, especially politicians.

[deejaydana]

There is a HUGE amount of blame that should be laid at "the people's" feet, but you will never ever hear anyone say that, especially politicians.

And I'll be the first person to preach personal responsibility. It's just sad. tragically so even, that a quasi-government entity is just as morally bankrupt & greed-driven as the dreaded private industry, isn't it? Wouldn't read it much in the NY Times though would you?