Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

Promoting fears about the budget deficit is a major industry in Washington. The central theme is usually that we have out of control spending which will make us just like Greece in only a few short years. The policy take away from this story is that we have to cut Social Security and Medicare, and the sooner the better. This is just the idea put forth by Rep. Tom Cole (R-Okla.) in a recent piece that appeared on The Hill's Congress Blog.

Everything in this picture is wrong. The basic story of out-of-control deficits as an ongoing problem is nonsense. While people may have complained about the deficits in the Bush presidency, the debt-to-GDP ratio was actually falling by the end of his administration and was projected to continue to fall for the foreseeable future, even without the ending of the Bush tax cuts.

The factor that changed this picture was the economic downturn that followed the collapse of the housing bubble. The projections for deficits soared before President Obama even took office; the people who want to blame an Obama Administration spending spree for the deficit are missing the mark.

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As I write in a new CEPR briefing paper (pdf), the United States leads the wealthy world in the share of its workforce in low-wage jobs. According to the commonly used international definition of low-wage work –earning less than two-thirds of the median hourly wage– about one-fourth of US workers are low-wage.


The report draws five lessons from the experience of the United States and other rich countries over the last several decades:

  • Lesson 1: Economic Growth is not a Solution to the Problem of Low-wage Work
  • Lesson 2: More “Inclusive” Labor-market Institutions Lead to Lower Levels of Low-wage Work
  • Lesson 3: The United States is a Poor Model for Combating Low-wage Work
  • Lesson 4: Low-wage Work is Not a Clear-cut Stepping Stone to Higher-wage Work
  • Lesson 5: In the United States, Low Wages are among the Least of the Problems Facing Low-wage Workers
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The economists who predicted the housing crisis tend to be a gloomy bunch, as Adam Davidson notes in his latest New York Times Magazine column. Dean Baker is the rare exception. In the following guest post on NPR's Planet Money blog, he explains why he has parted ways with the economic pessimists.

For more than five years before the recession began in December of 2007, I was one of the leading economic pessimists, warning of the housing bubble and the damage that its collapse would do to the economy. I based this pessimism on my analysis of the housing market, not a genetic disposition to pessimism. Given the economy's current situation, I find the warnings of the pessimists – the double-dip gang – to be wrongheaded and seriously counterproductive.

First to the economy's near-term prospects: the economy is growing and will in all probability continue to grow. Economies do generally grow. We see new investment, leading to more employment and higher productivity, which leads to higher profits and higher wages.

In the past when the economy has fallen into a recession it has been the result of plunges in house sales and car sales. Neither possibility seems plausible at the moment, primarily because both remain at extraordinarily low levels that leave little room for them to fall further. Even if they did fall, it would have only a limited impact since current demand is already so depressed.

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Unemployment fell to 8.3 percent in January, bringing its drop over the last year to 0.8 percentage points, according to the latest Bureau of Labor Statistics employment report. The establishment survey showed an overall gain of 243,000 jobs — with the private sector adding 257,000, making up for losses in the public sector. Upward revisions to job growth for the prior two months have resulted in an average growth of 201,000 jobs over the last three months. Ignoring Census hiring, this is the strongest three-month stretch since February to April of last year when job growth averaged 239,000 a month.

African Americans saw an especially sharp decline in unemployment in January, with their overall rate falling by 2.2 percentage points to 13.6 percent, the lowest level since March of 2009. The unemployment rate for African-American men over age 20 fell by 3.0 percentage points to 12.7 percent, the lowest level since November of 2008. The drop for women over age 20 was 1.3 percentage points to 12.6 percent.

For a more in-depth analysis, read the latest Jobs Byte.

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The following highlights CEPR's latest research, publications, events and much more.

CEPR on Haiti Two Years After the Quake
It’s been two years since the devastating earthquake in Haiti. Through interviews, articles, Hill briefings and the Haiti Reconstruction and Relief Watch blog, CEPR marked the occasion by focusing attention on the ongoing humanitarian emergencies that hundreds of thousands struggle with daily. Half a million people remain homeless, more lack adequate sanitation, and the country grapples with a cholera epidemic the UN refuses to take responsibility for causing. CEPR has led the call – along with the Institute for Justice and Democracy in Haiti and other organizations – for UN accountability for this and other criminal actions in Haiti. Co-director Mark Weisbrot was quoted in this ABC News article on the cholera epidemic, and he appeared in this ABC News video on sexual assaults by UN troops. He was also cited at length in thisUSA Today report on recovery efforts.

Mark and CEPR Research Assistant Jake Johnston contributed a chapter to the book Tectonic Shifts: Haiti Since the Earthquake. Editor Mark Schuller discussed the book at a January 24th event CEPR sponsored along with TransAfrica, Teaching for Change, and Busboys and Poets. Jake was interviewed by FAIR’s syndicated radio show “Counterspin” about the situation in Haiti, and was cited in this Miami Herald report that was reprinted in dozens of U.S. newspapers. Mark took part in a panel discussion on Al Jazeera’s “Inside Story” that assessed the relief and recovery effort in Haiti. CEPR’s tracking of the aid and recovery situation was also cited in dozens more newspaper articles, blog posts, and radio reports.

CEPR participated in a series of congressional panels on Haiti— part of a Congressional Schedule of Events that took place January 24-25. On the 24th, Mark was a panelist at a briefing on the cholera outbreak sponsored by the offices of Rep. Frederica Wilson, Rep. Yvette Clarke, Rep. Barbara Lee, Rep. Donald M. Payne, and Rep. Maxine Waters. Later that same day, Mark was a panelist at another briefing sponsored by the offices of Rep. Yvette Clarke, Rep. Barbara Lee, and Rep. Donald M. Payne. That briefing followed the screening of excerpts of the documentary "Haiti: Where Did the Money Go?" which focuses on the status of relief efforts and steps towards increasing accountability of aid organizations. CEPR and the film were subsequently mentioned in this column by Clarence Page for the Chicago Tribune.

On January 25th, Mark participated in a briefing on Haiti’s political process, including the roles of the President, the Prime Minister, and members of Parliament; the various political parties in Parliament and who they represent; and the influence of various interest groups and stakeholders, including the wealthy elites, the business sector, and the impoverished majority. The briefing was moderated by Rep. Maxine Waters and was sponsored by Waters and Rep. Barbara Lee.

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Former Massachusetts governor Mitt Romney, who remarked yesterday that he doesn't care about the poor, supports indexing the minimum wage to inflation. If the minimum wage had been indexed since its last increase in July 2009 it would be $7.60 instead of $7.25. If it had been indexed to inflation since 1978 it would be almost $9.00 today.

The Democrats have historically been the major proponents of a higher minimum wage ever since a federal minimum wage law was first instituted in 1938. It will be interesting to see if President Obama or other leaders in the Democratic Party feel the need to respond to Romney's proposal.

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Last week Brazil hit record-low unemployment of 4.7 percent (or 5.5 percent, seasonally-adjusted). But almost all of the jobs created in the last three months were in the business services, finance and real estate. This is remarkable: that sector comprises only 16.9 percent of all jobs.


Meanwhile, industry and commerce – sectors that have traditionally been drivers of job growth – have actually lost jobs for two quarters in a row. This is the first time that industry has lost jobs outside of a recession since 2006.

For a more in-depth analysis, read our latest Latin America Data Byte.

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The seasonally adjusted Case-Shiller 20-City index fell 0.7 percent in November, according to the latest indicators and developments in the housing sector. The index, which is in its seventh consecutive month of decline, has now fallen in 17 of the last 18 months. In recent months, the rate of price decline appears to be accelerating modestly, with prices dropping at a 7.9 percent annual rate over the last three months compared to a 3.7 percent decline over the last year.

There is little reason to expect that house prices will stop their decline any time soon. The best path would be a slowing rate of decline with, prices perhaps leveling off by the end of 2012. In several markets, particularly cities on the West Coast, the housing bubbles have not yet fully deflated. Nothing should be done to prevent them from deflating; however, it would be desirable to see prices stabilize and possibly rise somewhat in markets where the bubble has fully deflated and the market is overshooting on the down side.

For a more in-depth analysis, read the latest Housing Market Monitor.

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Both the New York Times and Washington Post’s fact-checks on the GOP presidential debate Thursday night missed the mark regarding former Senator Rick Santorum’s (R – PA) comments about Honduras.

Responding to the question, “What would each of you do as president to more deeply engage in Latin America and, importantly, to support the governments and the political parties that support democracy and free markets?”, Santorum’s answer included this statement regarding the Obama administration’s response to the 2009 coup in Honduras:

Our policy in Central and South America under this administration has been abysmal. The way we have treated, in particular, countries like Honduras, Honduras, which stood up for the rule of law, which threw out a would-be dictator who was using the Chavez playbook from Venezuela in order to try to run for re-election in Honduras, and the United States government, instead of standing behind the -- the people in the parliament, the people in the Supreme Court, who tried to enforce the constitution of Honduras -- instead of siding with them, the Democrats, President Obama sided with two other people in South America -- excuse me -- Central America and South America. Chavez and Castro and Obama sided against the people of Honduras.

The Washington Post’s The Fact Checker wrote:

Santorum’s statement reflects a commonly held viewpoint among conservatives, but it glosses over the fact that there was a coup against the democratically elected president of Honduras, Manuel Zelaya. The Obama administration, working with the Organization of American States, refused to recognize the parliamentary leader who had been named president and instead tried to broker a compromise that would have allowed Zelaya to serve out his term. But that effort failed. Eventually a new election was held and another man was elected president.

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Center for American Progress

Movin’ It and Improvin’ It!: Using Both Education Strategies  to Increase Teaching Effectiveness
Craig D. Jerald

Center on Budget and Policy Priorities

Proposed Kansas Tax Break for "Pass-Through" Profits Is Poorly Targeted and Will Not Create Jobs
By Nicholas Johnson and Michael Mazerov

Center for Economic and Policy Research

Low-wage Lessons
John Schmitt

Pension Liabilities: Fear Tactics and Serious Policy
David Rosnick and Dean Baker

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Union membership hit a plateau in 2011 after falling by almost 1.4 million workers between 2008 and 2010, according to the latest Bureau of Labor Statistics Union Membership report. At 14.8 million (up about 49,000), the total number of union members and the share of workers in a union, 11.8 percent (down 0.1 percentage points), were essentially unchanged last year.


In the public sector, the total number of union members declined 61,000, as squeezed federal, state, and local governments cut back employment. Union density (the share of the workforce that is a member of a union) in the public sector, however, increased 0.8 percentage points, to 37.0 percent - due to overall employment in the sector declining more rapidly than union membership. In the private sector, union membership increased by about 110,000, with union density holding steady at 6.9 percent.

For a more in-depth analysis, read our latest Union Byte.

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That seems to be what the administration is proposing, according to an article in the New York Times. The article says that the Obama Administration wants to let people with underwater mortgages with private lenders refinance into government-guaranteed mortgages.

As described in the article, this would effectively mean that the government will be giving banks 100 cents on the dollar for mortgages where they could have anticipated substantial losses. If this is true, it would mean that the banks and investors who hold stakes in mortgage-backed securities would be getting far more money out of the deal than the homeowners who the policy is ostensibly designed to help.

To take a simple example, suppose a homeowner owes $250,000 on a home that is currently worth $200,000. It is likely that this homeowner will at some point default on the mortgage or need to make a short sale, which could result in the bank losing $50,000 or more. (Foreclosures involve substantial legal expenses and require that the bank pay a realtor to resell the property.)

On the other hand, if the government guarantees a new loan, the bank gets it full $250,000 back. The government would now stand in the same position as the bank had formerly, possibly losing $50,000 or more if the homeowner defaults. On the other hand, the benefit to the homeowner is paying a lower interest rate. If this arrangement results in a 2-percentage-point drop in the mortgage interest rate, the homeowner would save roughly $5,000 a year. In this story, the homeowner is almost certain to get much less out of the deal than the bank or investor.


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To understand President Obama’s State of the Union speech, you have to understand his political strategy. From the beginning of his 2008 campaign, his main constituency has always been the major media. He has always calculated that he can win without the energy companies and even some other big campaign donors, but not if the mainstream media doesn’t like him. So a little bit of populism on the tax issues – e.g, the Buffet Rule - is now acceptable, especially in the context of deficit reduction and Republicans’ pro 1 percent extremism.

The other key constituency is the swing voters – he is taking Democrats for granted – which for the last four decades have been composed largely of white working-class voters. According to the leading Democratic pollster Stan Greenberg, the speech was effective with swing voters. So, overall a success for Obama.

And the people? There were a lot of specific proposals around energy, education, skills training, infrastructure, etc. But with the President committed to the silly goal of deficit reduction, with Republican obstructionism, and Obama’s general lack of willingness to fight for human needs – remember his promises of a public option in health care reform? Or labor law reform? – I’m not holding my breath. Especially employment – can’t do much about that without federal spending. And seniors, hold on to your wallet when he mentions “strengthening Social Security.”

His foreign policy is much worse – “all options on the table” for Iran, which is code for the threat of yet another war. No commitment to get out of Afghanistan. When he talks about how “America is back” with “the enduring power of our moral example,” I see images of U.S. soldiers pissing on corpses, drones slaughtering civilians in Pakistan and Afghanistan, massacres like Haditha (with impunity).

“Above all,” he tells us, “our freedom endures because of the men and women in uniform who defend it.” This could hardly be more false. America has lost more freedoms in the last decade, including during Obama’s presidency, than any other developed democracy in the world; and nobody fighting these unnecessary wars is defending our freedom.

This post originally appeared in The Guardian.

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That would seem to be the case from the leaks about a mortgage settlement which would reportedly give the banks and their executives immunity for all their misdeeds connected with the housing bubble in exchange for $20 billion in principle write-downs on underwater mortgages. And, Naked Capitalism reminds us that this $20 billion need not even come out of the banks' pockets. This includes write downs on mortgages that they are servicing, which means that the money would come out of investors' pockets.

Apart from the limited money at stake, the question is why would there be a reason to grant immunity for criminal wrong-doing? If people at these banks committed fraud, for example by lying about possessing documents that they did not possess, lying about the terms of loans to mortgage applicants or misrepresenting the mortgages in pools to investors, then why would we want to give them a get out of jail free card?

If no such fraud was committed, then there is no reason to include this sort of immunity in a settlement. The only reason to grant immunity of this type is if fraud was committed and the Obama administration wants to let the bankers off the hook.

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This week, we post links to reports from the Center for American Progress, Center on Budget and Policy Priorities and National Employment Law Project.

Center for American Progress

Building a Technically Skilled Workforce
Louis Soares and Stephen Steigleder

Center on Budget and Policy Priorities

House republican proposal would undermine foundation of unemployment insurance system
Hannah Shaw and Chad Stone

National Employment Law Project

Winning Wage Justice: A Summary of Research on Wage and Hour Violations in the United State

Winning Wage Justice: Choosing the Policy Options Right for Your Community

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Late last year, the Congressional Budget Office (CBO) responded to an inquiry from Senator Orrin Hatch about the potential impact of a financial transaction tax (FTT) of three one-hundredths of a percent on (1) GDP and jobs, (2) municipal financing, and (3) U.S. Treasuries. 

In general, CBO responded that the FTT “could” or “would probably” cause “slight” negative effects in the short term, and it never quantifies these effects.  As for long-term impact, CBO states that it does not know whether it will be positive or negative.  While some media and critics have held up this letter as a major setback for the FTT, let’s take a closer look at what CBO actually said:

Question #1:  What impact would the proposed tax have on gross domestic product (GDP) and on U.S. jobs?

CBO’s response:

In the short term, imposing the transaction tax would probably reduce output and employment.  Beyond the first few years, however, the tax’s net impact on the economy is unclear… Employment would be unaffected in the long term.

This appears to be far from damning.  CBO dilutes its assessment of the short-term impact with the qualifier, “probably,” and says that the long-term impact on GDP is “unclear” and that jobs will not be affected.  In explaining its reasoning, CBO looks at effects on investment and decides to counter an argument in favor of the FTT: 

Some analysts believe that… the tax would reduce volatility… [and] might discourage short-term speculation, which can destabilize markets… However, the tax would discourage all short-term trading, not just speculation—including transactions by well-informed traders and transactions that stabilize markets. 

In fact, the extent to which “well-informed” traders can stabilize prices is trivial. The transactions that CBO refers to happen when there are slight price discrepancies between different exchanges, and traders make profits by capitalizing on these gaps.  If, for example, the FTT were to make this trading profitable only when the gap between prices of a certain stock rose to 11 cents instead of 10 cents, then the FTT would allow prices to be slightly further out of balance for a little longer, which has essentially zero consequence.

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The Consumer Price Index remained unchanged in December, according to the latest Bureau of Labor Statistics' reports on the consumer price, US import/export price and producer price indexes. This is the third month in a row without an increase in the index, bringing the three-month annualized rate of headline inflation to -0.4 percent. Much of the variation in inflation rates can normally be attributed to food and energy prices, and recent history is no exception. Energy prices fell 1.3 percent in December and fell at an 18 percent annualized rate since September, compared with a 26.6 percent rate increase over the three months prior.

The real hourly wage for production and nonsupervisory employees once again was flat in December. Though this may be in small part due to the creation of a few low-paying jobs, the low rate of wage growth will also help keep low the rate of inflation and make it difficult for consumers to repay their debts. In all, this report once again indicates that a high rate of inflation is far removed as a threat to the economy.

For a more in-depth analysis, read the latest Prices Byte.

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Source: Alan Krueger, Council of Economic Advisers.

Economist Miles Corak, one of the world’s leading experts on economic mobility, has written a devastating take-down of the core of two recent pieces by the Brookings Institution’s Scott Winship. Winship has been arguing that President Obama, his economics team, and many others on the political left are wrong to claim that economic mobility has been on the decline in recent decades. But, as Corak documents, it is Winship that is misreading the data.

Winship’s first piece was written in response to President Obama’s much-commented-on speech last December in Osawatomie, Kansas, where the president argued that a child born into poverty today has a lower chance of reaching the middle class –about 33 percent– than a child born into poverty just after World War II – about 50 percent.

Writing in the National Review Online, Winship said that the president’s “claim of falling upward mobility … rang false” and “is contradicted most of the research that has been conducted to date.” Winship’s criticisms focused on some pretty technical issues in research conducted by Berkeley economist David Card, one of the country’s foremost labor economists and winner of the 1995 John Bates Clark medal. After reviewing Card’s numbers, Winship concludes that upward mobility today “is no worse than it has ever been and it does not translate into a general lack of opportunity for the middle class.”

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There is clearly a role for private equity in the US economy. Successful companies too small to go public that are having difficulty raising capital for expansion  to capitalize on their success may turn to private equity for the infusion of capital they need to make acquisitions or to grow organically. Publicly traded companies that are doing okay but lag the industry’s leading firms can benefit from an influx of management know-how as well as capital if they are taken over by a private equity firm that includes among its partners managers with experience operating companies in the industry. Unfortunately, adding value and selling companies at a fantastic profit is not the only way that the partners in a private equity firm make fantastic amounts of money.
Private equity is part of the large shadow banking system in the US. It raises huge unregulated pools of money – not only from pension funds and endowments but from sovereign wealth funds like the Abu Dhabi Investment Authority and the China Investment Corporation – and spends these funds out of view of agencies responsible for assuring the stability of the financial system and out of sight of the American people. Incentives favor the high use of leverage – the borrowed money that is used to finance private equity transactions – and raise the odds of bankruptcy or other financial distress.  First, and most importantly, responsibility for repaying the debt incurred when the private equity firm borrows money to buy a company falls on the company that was acquired – not on the private equity firm.  The only money the private equity firm and the investors in its investment funds have at risk is the initial equity they put up as a down payment. Not surprisingly, they would like this to be as small as possible. Second and following from the first point, greater use of leverage magnifies the returns to private equity from its successful investments while minimizing the losses from its unsuccessful efforts.  Thus, a private equity fund can have strong returns even if some of the companies in its portfolio perform poorly or even go bankrupt. And third, the US tax code treats debt more favorably than equity since interest on the debt can be deducted from income.  In what might be called tax-payer funded capitalism, the reduced taxes from the higher interest deduction increase the firm’s value and returns to investors without creating any new value. My colleague at CEPR, Dean Baker, provides a simple example.
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