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2009 discussion of US unemployment, including birth/death (B/D) model

Backup copy of 2009 FireDogLake (FDL) webpage that has popups and retrieval problems as of 7/05/2014 but contents are too informative to lose

Obama Promises Cuts as Employment Staggers Under the Weight of Low Corporate Tax Rates, By: Stirling Newberry stirling7.png, Friday January 9, 2009 12:55 pm via firedoglake.com and specifically, http://firedoglake.com/2009/01/09/obama-promises-cuts-as-employment-staggers-under-the-weight-of-low-corporate-tax-rates/#comments

The recession neared 3 million victims last month, as upward revisions for November and October made it four straight months with at least 400,000 or more payroll positions lost. The December number was 531,000 private payroll positions. In all, this recession has reduced private sector payrolls by 2,784,000 – that compares with 3,450,000 from the entire previous recessionary period which ran from January of 2001 until July of 2003.

But the internals are the date were even worse: the long term unemployed doubled from 1.3 million to 2.6 million, and according to the household data 380,000 people left the work force. The headline unemployment rate rose to 7.2%, which included an upward revision of unemployment going back to 2004. The broadest measure of under-employment "U-6" reached 13.8% with the number of people working involuntarily part time nearly doubling since the trough in 2006. It’s no longer the hidden problem.

Worse still, the birth-death model, which consistently under-estimated how many McJobs the last expansion was creating – bad jobs with no benefits in franchises and other "small companies," is now not predicting correctly how fast these pink collar and paper collar jobs are evaporating. This means these numbers will probably be revised upwards.

It is also a recession that is falling more heavily on people below 55, which is one explanation for the persistent disconnect between older Americans, and younger Americans, over the last two years.

The adjectives flowed: Capital Spectator chose grim, Portfolio went all the way to gruesome, and even the fumbling-for-excuses Swamp blog has finally joined the double digit unemployment club. Bespoke noted that this is the most brutal employment report since the massive 1982 recession.

The driver of this is the collapse in the mortgage ATM market, and the abysmal Christmas sales – restaurants and retailers both saw drops. This fuels further deflationary expectations. A year ago right wingers, such as the Cato Institute were crowing about low corporate tax rates. However, corporations "invested" in the credit bubble creating an "output gap." Instead of raising corporate tax rates and engaging in stimulatory spending, Obama’s economic plan is larded with tax cuts.

These are self-defeating, in that with unsustainably low tax rates, given the multi-trillion dollar run of deficits to come, the marginal incentive to invest is low, compared with shoving the loot out the door – "profitizing" – in the present. Obviously Obama’s economic team hasn’t read the memo entitled "Tax Cuts Determined to Strike in US." Krugman estimates that this plan will close only between one half and one third of the output gap, meaning that the recovery, when it finally starts, will be like the last two, with very long slogs of slow employment growth in the 1990?s, or continued job losses in the 2000?s.

The President-Elect’s plan is wrong, Reaganite, and retrograde. It is very similar to policies which created a persistent depressed economy in Japan – and represents the next step to the Japanification of the American economy, where credit spreads are high and economic activity is slow, because any new money is used to pay off debts which should have been written off, but have not been.

If this keeps up, they are going to rename the "Department of Labor" the "Department of Leisure."

33 Responses to “Obama Promises Cuts as Employment Staggers Under the Weight of Low Corporate Tax Rates”

Teddy Partridge January 9th, 2009 at 1:00 pm 1
“Tax Cuts Determined to Strike in U.S.” — w00t!!

Raven January 9th, 2009 at 1:03 pm 2
I have a bs and masters in Leisure Studies!

ThingsComeUndone January 9th, 2009 at 1:11 pm 3
I’m worried that Obama is talking cutting entitlement spending when we need that spending the most and not cutting military spending.
Bush never got Ossama, We have been in Iraq longer than it took us to win WW2.
Fine we can’t win a long war but nobody can invade us and we can beat anyone in a short war.
Cut the military spending.

ThingsComeUndone January 9th, 2009 at 1:12 pm 4
In response to Raven @ 2
Are you sending in a resume

ThingsComeUndone January 9th, 2009 at 1:16 pm 5
Worse still, the birth-death model, which consistently under-estimated how many McJobs the last expansion was creating – bad jobs with no benefits in franchises and other “small companies,” is now not predicting correctly how fast these pink collar and paper collar jobs are evaporating. This means these numbers will probably be revised upwards.
Is the birth death model off or manipulated for political purposes Elaine Chao Mitch’s wife/beard runs the Dept.
If the model is off consistently say 3% then the model is off and we can estimate real numbers.
If the model is all over the place then we can blame Elaine in part for the financial crash. Unemployment numbers good and bad make people buy and sell stocks.

selise January 9th, 2009 at 1:19 pm 6
The President-Elect’s plan is wrong, Reaganite, and retrograde.
i’ve got nothing to add. just wanted to put this bit in bold and with emphasis. would used a larger font too, if wordpress allowed it.

selise January 9th, 2009 at 1:21 pm 7
In response to Raven @ 2
over qualified!

wesgpc January 9th, 2009 at 1:22 pm 8
Interesting piece from Nakedcapitalism. If true, another sign of how messed up the financial markets were, and how badly that messed up decisions and information in the economy:
Thursday, January 8, 2009
Dividends: What the Bank Giveth, the Bank Now Taketh Away
From Yves Smith’s summary/commentary:
It is now becoming clear that the great news on the dividend front from 2004 through 2006 was not an indication of solid corporate performance; it was just another sign of lax lending standards. Lenders who willingly handed out money to homeowners with bad credit were even more generous to corporate borrowers.
http://www.nakedcapitalism.com…..k-now.html [more-specific URL lacking, need google title if want]

ThingsComeUndone January 9th, 2009 at 1:24 pm 9
" We know that the GOP will fight Obama no matter what his plans are thy cannot allow him to have a success. So why is Obama saying he wants 80% yes votes for his bills I don’t think he is going to get it.
[= prophetic - how totally outoftouch Obama was once he miraculously got in]
I am hoping that Obama is playing possum laying over dead for the GOP and that when the GOP reject his ideas because the new Reagen needs an economic collapse to create another Shock Doctrine, Obama will say I tried to reach out to the GOP and then go with his real plan.
Clinton had much better polls after Newt tried to shutdown the government I think Obama is trying the same play.
[if only!]

eCAHNomics January 9th, 2009 at 1:24 pm 10
In response to ThingsComeUndone @ 5
If Chao played with the stats, she did a really bad job. "W" has now round-tripped the unemployment rate vs. Clinton who started at 7.3% and ended at 4.2%. If the unemployment rate goes up another smidgeon to 7.3% in January, a conservative forecast, then the mirror image will be perfect.

Margot January 9th, 2009 at 1:25 pm 11
Digg it.

Teddy Partridge January 9th, 2009 at 1:25 pm 12
But will Bernie Madoff’s helpless formerly mega-rich victims be fully rescued?
Will Citi be made whole in mortgage cram-down court?
Who will worry about the wealthy?

Prairie Sunshine January 9th, 2009 at 1:26 pm 13
ooops, epu-ed. Got opinions for Obama? We’ve an invited opportunity from the DNC to submit questions to Kaine…a synergy opportunity.
Looking down the long road, we need more and better Democrats [hmmmm, where have I heard that before *g*], so this was my question:
Living–and voting!–in a small red state that struggled for a thriving Democratic presence before Howard Dean’s 50-State Strategy, I’m concerned to know your plans to sustain that strong policy. Can we count on you and the National Democratic Party to continue to support Democratic grass roots in all 50 states.

BargainCountertenor January 9th, 2009 at 1:28 pm 14
In response to ThingsComeUndone @ 5
It’s difficult to distinguish between “model is off” and “model is manipulated.”

selise January 9th, 2009 at 1:29 pm 15
In response to ThingsComeUndone @ 9
So why is Obama saying he wants 80% yes votes for his bills I don’t think he is going to get it.
if he gives the Rs what they want, i bet he’ll get the 80 votes. my question is this: does obama really want to implement reaganite retrograde polices?

ThingsComeUndone January 9th, 2009 at 1:33 pm 16
It is now becoming clear that the great news on the dividend front from 2004 through 2006 was not an indication of solid corporate performance; it was just another sign of lax lending standards. Lenders who willingly handed out money to homeowners with bad credit were even more generous to corporate borrowers.
Now the situation has reversed. The quarter just ended had the worst dividend news for American companies in half a century, and this quarter could be even worse. Many corporate boards review annual performance and decide what to do about the dividend during the first two months of each year, and it is not likely to be a happy time.

http://www.nakedcapitalism.com…..k-now.html
If this is right big dividend stocks are going to tank older people tried to live on their dividends this will hurt them worse as a group.
There will be no stomach in the GOP to cut Social Security now.

ThingsComeUndone January 9th, 2009 at 1:35 pm 17 In response to eCAHNomics @ 10
Can’t follow your link might be me the connection seems wonky.

BargainCountertenor January 9th, 2009 at 1:35 pm 18 In response to Teddy Partridge @ 12
But will Bernie Madoff’s helpless formerly mega-rich victims be fully rescued?
They’d better not be. Not if we’re paying for it. They can have exactly the amount of blood they can squeeze from that turnip.
Will Citi be made whole in mortgage cram-down court?
Nope. Nobody’s made whole in Bankruptcy Court, and Citi’d better not be the first.
Who will worry about the wealthy?
I’m not, and I don’t care who worries about the wealthy. I know there are already plenty of people worried about them who ought not be.

bobbyk January 9th, 2009 at 1:39 pm 19
The radical right has so poisoned discourse for tax increases that it is impossible to do it. Clinton did manage some modest increases but then the radical right blundgeoned him and the dems lost their majorities. This country is NEVER going to see any tax increases again, we’ll go bankrupt first.

eCAHNomics January 9th, 2009 at 1:40 pm 20
In response to ThingsComeUndone @ 17
Here it is in unfancy form.
http://oxdown.firedoglake.com/diary/2901

ThingsComeUndone January 9th, 2009 at 1:40 pm 21
In response to selise @ 15
You might be right my competing idea is that the GOP does not want Obama to have any success even if its with their ideas.
The GOP needs a bad economy to blame Obama for if they want to win back the House, the Senate and the White House. Its either that or another terror attack the GOP needs the emotional lizard brain fear response to a DEpression or a Terror attack to trump the logic centers of the brain because we rule on ideas.
The GOP wins when their is Fear and Hate.

ThingsComeUndone January 9th, 2009 at 1:46 pm 22
Table 1 Unemployment Rate During Presidential Terms
Beg End High Date Low Date Eisenhower 2.9% 6.6% 7.5% 7/58 2.5% 5/53
Kennedy-Johnson 6.6 3.4 7.1 5/61 3.4 9/68
" Nixon-Ford 3.4 7.5 9.0 5/75 3.4 1/69
Carter 7.5 7.5 7.8 7/80 5.6 5/79
Reagan 7.5 5.4 10.8* 12/82 5.3 11/88
H.W. Bush 5.4 7.3 7.8 6/92 5.0 2/89
Clinton 7.3 4.2 7.3 1/93 3.8 4/00
W. Bush 4.2 7.3e 7.3e 1/09 4.2 1/01
http://oxdown.firedoglake.com/diary/2901

I see now and if the birth death model is off Bush will have left the country with higher unemployment that Clinton had when he started.
The Bush legacy project seems a hopeless task.

Stirling Newberry January 9th, 2009 at 1:49 pm 23
In response to ThingsComeUndone @ 5
The B/D model wasn’t manipulated politically, however seasonal adjustments were.
This was particularly evident in 2002 and 2003, when the BLS put in very large seasonal adjustments in September, October, and November that were not justified by the data and did not correctly adjust for the 9/11 attack effects. Basically they said “this is fall, the season where arabs fly planes into buildings.”

ThingsComeUndone January 9th, 2009 at 1:54 pm 24
Carter had a high of 7.8 I wonder if Bush will tie Jimmy?
Carter’s failure’s paved the way for Reagen will Bush’s pave the way for Obama?
The GOP talking heads are going to cry if we start equating Bush with Jimmy.

ThingsComeUndone January 9th, 2009 at 1:57 pm 25
In response to Stirling Newberry @ 23
By not making adjustments in a model that you know is flawed well that is just manipulating the statistics by inaction.

T-Bear January 9th, 2009 at 1:58 pm 26
This whole exercise is just another extension of the Chicago School of Economic Phrenology at work. Those things that will have a positive effect will be the last things effected. It is not the economic superstructures that drive the economy, although that is where wealth is stored, for the promise of safety and return. All too often, the schemes on offer are not much different than con-artist constructs. Throwing money at such schemes will deplete what little standing credit the money-printers still have, and once that is gone, so is the medium of exchange for all external purposes although there will remain some internal utility. There will remain a sizable but diminishing economy operating on inertia, this will soon pass a point that will not support the loads placed upon it.
As long as the means of economic production are held hostage to corporate ownership, there will not be much chance to remedy the failure of corporate capitalism. No economic market may be controlled by monopolistic or oligarchic corporations, no corporation should control more than 5% of their market, tax policies can be applied to these ends. In those markets that monopolistic control is natural, absolute oversight and regulation is required. An attack on wealth will be counterproductive, but de-coupling wealth from economic means of production is imperative.

ThingsComeUndone January 9th, 2009 at 2:00 pm 27
Alan Abelson at Barron’s the WSJ [Wall Street Journal] Saturday paper has been complaining about the Birth Death model for 2 years. The WH [White House] reads Barron’s its not like they didn’t know and they didn’t know that we knew the numbers were iffy.

Margot January 9th, 2009 at 2:26 pm 28
new post up top

Stirling Newberry January 9th, 2009 at 2:35 pm 29
In response to ThingsComeUndone @ 25
When the B/D model came in, to adjust for what used to be called the “bias plug,” I looked at it carefully. The Bias plug would have made even larger errors, if you run the numbers out, but would not have told us anything. The B/D model, by comparing what the economy should have looked like in a healthy recovery, versus what it did look like in the final figures, was really a clue.
The model’s failure was telling us something: that the Bush economy was McJobsifying faster than anyone expected. This tremor was data, it helped lead me to looking at the mortgage industry, because many of the McJobs being created were things like Mortgage processors. The B/D model took numbers for a normal economy, and translated that into a jobs number. This was always fewer jobs than were correct – which was why for a long time jobs figures came in lower than expected, not higher. The B/D model understated employment, making it look worse. In all, by almost a million jobs during the early recovery.
Now, what that should have told more people – as it told me – was that more of the jobs being created were at companies that didn’t actually do anything, they were part of a rapidly growing bubble industry that was artificially making the economy look better.
The B/D model was off not because the people who made it were making unreasonable assumptions, but because the policies of the administration itself were destroying the economy.

Margot January 9th, 2009 at 2:38 pm 30
New post [agent Margot: kindly contribute substance or butt out]

UserLoser January 9th, 2009 at 2:58 pm 31
Just wait for the January numbers. I don’t know where the brainbuckets draw the line but is over 10% unenjoyment a depression? Do you think they will start thinking about how we are going to gird ourselves for the real world? Do you think we could make some long term investments since the Depression looks like it has no end? How about some Subways and energy conservation solutions not sewers for suburbs we can’t afford? Do you think they might start rethinking what a rational defense model is. Can we afford to be policeman for the world any longer? A job we haven’t exactly been stellar at.

oldoilfieldhand January 9th, 2009 at 3:17 pm 32
Obama should have the government step up and pay off student debt. A huge amount of the debt carried by young working college graduates was the result of immoral actions by counselors who steered students to expensive loans. Pay off half of the current student loans, these people are working and will spend their monthly payment reduction, thereby stimulating the economy.

Stirling Newberry January 9th, 2009 at 4:15 pm 33
In response to UserLoser @ 31
There’s no formal definition for a depression, there is a rule of thumb that has a 10% fall in output, as measured by GDP for example. We’ve not come close to that in the US since the 1930’s.
We may or may not see 10% headline unemployment rate, because unemployment as a rate is based on two things: one is how many people are out of work and looking for work, the other is how many people are employed. Unemployment rates can then be lowered by driving people out of the work force, or just not counting them. Reagan’s administration did that, as did Chao earlier on. Keeping a lid on the headline unemployment rate has both a political payoff, in making it possible to argue things are better than they are, and an economic policy one: a lower UI means that it is possible to argue for lower interest rates. Greenspan did that.
Because of persistent oddities in the Household survey from which the UI rate is derived, many economists started ignoring it. In the early 2000’s I argued that the oddities came because the Household data was counting people doing unpaid work as “employed,” and that people doing non-payroll labor in the farm sector were being miscounted – that is, it measured a different “universe” of people than payroll data, and once one adjusted for the differences, that the household date normalized out. Later Greenspan came out and admitted this. But by that point people had moved to following the “establishment” data, which is where payrolls come from.
To nail the nail in the B/D coffin: if B/D were being fudged intentionally, then it would have added more jobs, not fewer. This is why for years employment numbers were coming in below expectations, and then revised upwards just as consistently. The B/D model was underestimating job growth, not overestimating it. The fix for the B/D problem is to realize that the economy we have, is crummier than the economy we ought to have, that as long as the B/D model is underestimating employment, it means we are getting too many McJobs, and not enough jobs with established firms that pay more money and have better wages.

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