The Invisible Ever-expanding Government Sector

One of the criticisms leveled against the Federal Government’s efforts of the last couple of years in response to the Great Recession is that the “government is gettng too big”.  Well as they say on TV, let’s go to the tape.  Or, in this case, let’s look at the actual numbers over time.  Fortunately, we don’t have to dig them up, Menzie Chinn already has:

The “Ever-Expanding” Government Sector, Illustrated

Just some numbers to bring reality into the general discussion:
Figure 1: Employment in government, in thousands, seasonally adjusted (blue), and excluding temporary Census workers (red). Total series is “USGOVT” from FREDII. NBER defined recession shsaded gray, assumes last recession ended 2009M06. Source: BLS, August employment situation release.Update 8:50am Pacific, Thu 9/9:

Reader John Eckstein was kind enough to send me disaggregated government employment data, so that I wouldn’t have to do it myself. Here are some graphs thus generated. Note, these figures do not include uniformed military; they are based the establishment survey.

Figure 2: Federal (red), state (green), local ex.-educ. (orange) and local-education (purple), as a share of total nonfarm payroll employment (FRED II series PAYEMS). Source: BLS CES data via John Eckstein, and FRED II, and author’s calculations.

Unemployment, August 2010

Another late catch-up post for my classes.  The Employment and Unemployment reports came out Sept 3 for August, 2010.  Calculated Risk covers the story with the usual impeccable graphs.  It’s pretty close to the expected. Not as bad as feared, not as good as hoped, and nowhere near as good as we need.

From the BLS:

Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).

Census 2010 hiring decreased 114,000 in August. Non-farm payroll employment increased 60,000 in July ex-Census.

Both June and July payroll employment were revised up. “June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000.”

Employment Measures and Recessions Click on graph for larger image.

This graph shows the unemployment rate vs. recessions.

Nonfarm payrolls decreased by 54 thousand in August. The economy has gained 229 thousand jobs over the last year, and lost 7.6 million jobs since the recession started in December 2007.

Percent Job Losses During Recessions The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

The dotted line is ex-Census hiring. The two lines have almost joined since the decennial Census hiring is almost over.

For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early ’80s recession with a peak of 10.8 percent was worse).

You’re Not Going to Get Rich in the Stock Market

One of the enduring myths of 20th century American capitalism is that “anyone can do it”.  Anyone can get rich, that is.  And one of the ways people are encourage to “get rich” is by wisely gambling investing in the stock market.  Unfortunately for countless numbers of people hoping to retire soon, it just isn’t true.  Yes, it’s possible to maybe hit or guess a stock that rises dramatically. You just might get Microsoft in 1984, but it’s not likely.  You were probably just as likely to get Digital Research in 1984.

Here’s an interesting graph (one of many) from James Hamilton, one of the better econometricians of our time.

Figure 2. Green line: Ratio of real value (in 2010 dollars) of S&P composite index to the arithmetic average value of real earnings over the previous decade, January 1880 to Aug 2010. Red line: historical average (16). Blue line: average compounded nominal rate of return on stocks purchased at the indicated date and held for ten years from that date. Data source: Robert Shiller.

Even at today’s supposedly “low” prices following the 2008 crash, PE ratios are still higher than normal.  No values here. Note also that 10-year returns on stocks are now negative. If you’re planning on retirement or saving for a child’s college education, don’t assume you’ll earn the 8-12%’s that the stock brokers and investment advisors claim.

It’s well worth the short amount of time required to read the full article at:

Watch the Dealer, you “Lesser People”. The Deck is Stacked

I know I’ve mentioned it before (see here), but the deck is stacked against seniors, working people, and most everybody else that’s not in the investment banker-politico ruling elite. Now let’s take a look at some recent quotes from the co-Chair of the President’s Commission on Fiscal Responsibility, Alan Simpson.

Soon after he was appointed to this role:

Simpson gave an interview on the NewsHour after his appointment, saying:

You have two choices…you either raise the payroll tax or decrease the benefits or start affluence testing. The rest of it is B.S. This country is gonna go to the bow-wows unless we deal with entitlements, Social Security, and Medicare.
From Columbia Journalism Review

Now that’s just total BS and nonsense. Social Security is not in contributing to the deficit. In fact, it actually helps fund and offset the deficit by the way the U.S. collects more in payroll taxes (Social Security taxes) than necessary to fund current outlays. But, Simpson’s not likely to let facts get in the way of something he’s wanted to do for decades: cut Social Security.

Now more recently (last month):

In his exchange with Alex Lawson of the advocacy group Social Security Works, reported Friday by my colleague Holly Yeager, Simpson challenged Lawson, asking “Where do you come up with all the crap you come up with? We’re trying to take care of the lesser people in society and do that in a way without getting into all the flash words you love to dig up, like cutting Social Security, which is bullshit.”

Got that? You and I, we are “lesser people”. Your grandma? A lesser person according to Simpson. Your mother and dad? Lesser people according to the guy who is going to chair the commission that seems dead-set on cutting Social Security. And remember, this President appointed him and won’t fire him.

Surely veterans are not “lesser people” right?  After all, they’re the noble warriors who defended the flag that Simpson and others like to wrap themselves in.  Wrong. Simpson again thinks veterans, at least those unfortunate enough to have been in the way when the U.S. used Agent Orange in Vietnam to defoliate burn down everything in sight.  He thinks these veterans getting disability benefits are part of the problem too.

Fresh off of being forgiven by the White House, Simpson has a new target.

RALEIGH, N.C.—The system that automatically awards disability benefits to some veterans because of concerns about Agent Orange seems contrary to efforts to control federal spending, the Republican co-chairman of President Barack Obama’s deficit commission said Tuesday.

Former Wyoming Sen. Alan Simpson’s comments came a day after The Associated Press reported that diabetes has become the most frequently compensated ailment among Vietnam veterans, even though decades of research has failed to find more than a possible link between the defoliant Agent Orange and diabetes.

“The irony (is) that the veterans who saved this country are now, in a way, not helping us to save the country in this fiscal mess,” said Simpson, an Army veteran who was once chairman of the Senate Veterans’ Affairs Committee….

“It’s the kind of thing that’s just driving us to this $1 trillion, $400 billion deficit this year,” Simpson said. “It’s not that I’m an uncaring person, but common sense is the most uncommon thing in Washington.”

From Daily Kos

Do Copyrights Slow Growth?

Institutions and laws matter for economic development.  It is very clear from economic history that protection for property rights is necessary for industrialization and growth.  But that was always about property rights in land and physical stuff.  In the 1960’s the phrase “intellectual property rights” was created, and many people have just assumed that protecting so-called “intellectual property rights” is necessary to growth.  Of course that assumption has been made without reference to the historical record.  Now a German economic historian Eckhard Höffner, disputes this.  Instead, he observes that the absence of copyright accompanied Germany’s fantastic growth and industrialization in the 19th century, leaving England and France in the dust.  Frank Thadeusz, writing in Der Spiegel, says:

The entire country seemed to be obsessed with reading. The sudden passion for books struck even booksellers as strange and in 1836 led literary critic Wolfgang Menzel to declare Germans “a people of poets and thinkers.”

“That famous phrase is completely misconstrued,” declares economic historian Eckhard Höffner, 44. “It refers not to literary greats such as Goethe and Schiller,” he explains, “but to the fact that an incomparable mass of reading material was being produced in Germany.”Höffner has researched that early heyday of printed material in Germany and reached a surprising conclusion — unlike neighboring England and France, Germany experienced an unparalleled explosion of knowledge in the 19th century.

German authors during this period wrote ceaselessly. Around 14,000 new publications appeared in a single year in 1843. Measured against population numbers at the time, this reaches nearly today’s level. And although novels were published as well, the majority of the works were academic papers.

The situation in England was very different. “For the period of the Enlightenment and bourgeois emancipation, we see deplorable progress in Great Britain,” Höffner states.

Equally Developed Industrial Nation

Indeed, only 1,000 new works appeared annually in England at that time — 10 times fewer than in Germany — and this was not without consequences. Höffner believes it was the chronically weak book market that caused England, the colonial power, to fritter away its head start within the span of a century, while the underdeveloped agrarian state of Germany caught up rapidly, becoming an equally developed industrial nation by 1900.

Even more startling is the factor Höffner believes caused this development — in his view, it was none other than copyright law, which was established early in Great Britain, in 1710, that crippled the world of knowledge in the United Kingdom.

Germany, on the other hand, didn’t bother with the concept of copyright for a long time. Prussia, then by far Germany’s biggest state, introduced a copyright law in 1837, but Germany’s continued division into small states meant that it was hardly possible to enforce the law throughout the empire.

It is increasingly appearing that copyright is only economically good for publishers and those few authors/writers/performers who are fortunate enough to become superstars.  Overall, for us the paying public we pay twice: once when we overpay for monopolistically produced books/songs, and twice when our economy and technologies fail to advance as fast  as possible because we won’t/don’t/can’t share information.  Let’s hope the World Wide Web can change that.

Smells Like Deflation

Oh, buried in the press release on 2nd Qtr 2010 GDP estimates is this item:

The price index for gross domestic purchases, which measures prices paid by U.S. residents,
increased 0.1 percent in the second quarter, the same increase as in the advance estimate; this index
increased 2.1 percent in the first quarter.  Excluding food and energy prices, the price index for gross
domestic purchases increased 0.8 percent in the second quarter, compared with an increase of 1.6
percent in the first.

Gee, 0.1%! That’s pretty close to zero and the negative numbers. Deflation (negative inflation on the price index) isn’t going to help us. In fact, it’s likely to make things much worse.

Why is deflation so bad?  After all, when we’re shopping we always look for ‘lower prices’, so why is deflation, which is a general decline in prices so bad?  The answer is the difference between micro and macro and the fallacy of composition.   When it’s just the price of one item and we are the buyer, then lower is good – it’s a better value.  But remember there’s a person that wants that price to be higher – the seller.  And in macro, when we’re talking about the entire economy, we are all not only buyers, but all of us are also sellers.  So the logic from micro that lower prices are good only holds true for consumers/buyers of particular goods.

There are two reasons why deflation, a general drop in most prices, is bad.  First, it discourages people from spending. If a purchase is at all delay-able, then it makes sense to wait because the price may be lower.  But that also means less spending in general and less employment as firms can’t sell their existing inventory.  This particularly applies to consumer durable goods industries (cars, appliances, computers), but it also heavily hits business investment spending and housing investment.

The second reason, and more severe, is because deflation means incomes/wages are not going up either. In fact, deflation means incomes are dropping. But your payments and debts on earlier purchases don’t decline.  So payments on debt take an increasing share of our incomes leaving less and less to spend on GDP.

Yeah, it smells like deflation. And that’s not a good smell.