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

Arithmetic is a skill that is in short supply among economists in policymaking positions. The Obama administration is about to come out with its plans for replacing Fannie and Freddie. The word in the media is that the administration will propose a range of options, with one option maintaining a Fannie/Freddie type structure and one option going to a completely private system for the main sector of the housing market. (Presumably the Federal Housing Authority would remain in place even in the private system to provide credit to moderate income households.)

The third option, that apparently many Washington policy wonks are smiling upon, is a hybrid system with private institutions buying mortgages with a government guarantee standing behind them. (Depending on the construction, the government may either guarantee the institution or the mortgage backed security -- more likely it will be the latter.) According to a new paper by Moody's, this sort of hybrid system will reduce the cost of a 30-year mortgage by 90 basis points (9/10ths of a percentage point) compared to a purely privatized system. The Moody's analysis also calculates that it will raise house prices by 8 percent compared to a privatized system.

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President Obama has given little indication of the strategy for his upcoming trip through Chile, Brazil, and El Salvador. Will "the great listener" promote cooperation and understanding, or carry on the Bush administration’s approach of fighting against regional alliances?

Words of Wisdom from Past Leaders

Diplomatic cables released by WikiLeaks show that last year Chilean President Bachelet urged the Obama administration to avoid separating South American nations into ideological pigeonholes:

President Bachelet emphasized the need to understand the nuances of Latin America’s leaders and their countries rather than lumping them into populist and pro-western camps … emphasizing that Morales was very different from Venezuela’s Hugo Chavez.
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This graph by World Bank economist Branko Milanovic made the rounds last week.


Income ventiles, USA, Brazil, China, and India

Source: Branko Milanovic, The Haves and the Have Nots

To construct the figure, Milanovic first took the population of each of the four countries shown and ordered them from poorest to richest. Then, still within each country, he divided each of the ordered populations into 20 equal sized groups. The bottom group –a "ventile," for one-twentieth– has the poorest five percent of people in each country. The next ventile has the next-"richest" five percent, and so on, up to the last ventile, which contains the richest five percent of the country's population.

What is particularly interesting about this graph is that it allows us to compare the average earnings of the various ventiles across the four countries. So, for example, we can see that the average income in the poorest ventile in the United States appears to be higher than the average income of the richest ventile in India. This is an astonishing result and Milanovic, but especially many of the bloggers who covered the graph, make a lot of it.

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$44 trillion is a really big number. None of us, not even Bill Gates, will see anything close to that amount of money in our lifetime. It can sound very scary, which is exactly why the business-oriented group Third Way used it in reference to the projected shortfall in Social Security funding over the next 75 years. This was supposed to scare people into supporting cuts to Social Security to overcome this huge shortfall.

A more honest approach would try to put this number in a context that makes it understandable to people. This can be done by providing a basis of comparison for this $44 trillion number.

The graph below projects the revenue from a financial speculation tax over the next 75 years, using the same methodology as Third Way’s Social Security graph. This tax would apply to trades of stocks, options, futures, credit default swaps, and other financial assets. The tax would be set a low rate so that it would just reset trading costs back to the level of the 1980s or early 90s. Such a tax would have almost no impact on ordinary investors, even if it would be a big hit to Wall Street speculators. The United Kingdom has had this sort of tax for decades (although just on stock trades) and still has the largest financial market in Europe.

Potential Revenue of a Financial Speculation Tax versus Social Security Trustfund Shortfall

If the projected shortfall in Social Security is a big scary number, we can easily raise an even bigger scarier number just by taxing the sort of Wall Street high-rollers who brought on the economic crisis.

Or, to put it slightly differently, we can compare the Third Way’s $44 trillion to projected future income over Social Security’s 75-year planning period. It is equal to 0.6 percent of future income over this period. Third Way could have found this number in a few seconds by looking at the Social Security Trustees Report. Most people can understand what 0.6 percent is, but it isn’t quite as scary as $44 trillion.

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This is the third installment of a new weekly feature at the CEPR blog. Every Friday, we'll post a list of labor-market-related policy research reports from progressive research centers around the country. This week, reports from Center for Economic and Policy Research, Economic Policy Institute, and Political Economy Research Institute.

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The unemployment rate fell by 0.4 percentage points for the second consecutive month, but the news is hardly worth cheering about. The establishment survey showed a gain of just 36,000 jobs in January, following a revised gain of 121,000 jobs in December, according to the latest Bureau of Labor Statistics employment report. The average rate of job creation over the last three months has been just 87,000, a rate that is not enough fast enough to keep pace with the growth of the labor force. Furthermore, there is no sector showing especially strong growth. With the exception of manufacturing, which added 49,000 jobs, growth in other industries remained weak or non-existant, and there is little evidence that employers are about to pick up the pace of hiring.

The big gainers in January were white men, who saw their unemployment rate fall by 0.6 percentage points for the second consecutive month; although at 7.9 percent it is still somewhat higher than the 7.0 percent rate for white women. The unemployment rate for Hispanics also fell by 0.6 percentage points to 11.9 percent, but there was little change in the employment situation of blacks, whose overall unemployment rate of 15.7 percent remains near the peak for the downturn.

For more info, check out our latest Jobs Byte.


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Kudos to the Huffington Post for a devastating, in depth piece about underwater homeowners: Learning To Walk: Fear, Shame And Your Underwater Mortgage.

In it, HuffPo follows up with almost 50 underwater homeowners whom they first contacted a year ago about their predicaments.  They detail their struggles (and failures) to get mortgage modifications and short sales approved, and how they came to different decisions about staying in or walking away from (a.k.a. strategically defaulting on) their homes, reflecting their varied life situations.

Almost all would've been helped if they had the Right to Rent.  Some would've been able to stay in their homes, while paying a lower monthly rent than their mortgage payments, and getting out from underwater.  Others may have had more leverage with their banks if they had the option of Right to Rent, even if they didn't choose to exercise that option in the end.

Economist James Galbraith has lately thrown his support behind Right to Rent, stating:

A Home Owners Loan Corporation as in the New Deal, and effective foreclosure relief, partly through a right-to-rent law, would move the housing crisis toward resolution.

Let's get it done.

The Right to Rent Plan was originally conceived by CEPR's Dean Baker.  Endorsements of the concept have popped up in the mainstream media, on blogs, and on Capitol Hill -- for details, including how much homeowners in many areas could save by renting, see CEPR's Right to Rent issue page.

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The Washington Post told readers that the economy’s problem is not a lack of jobs, but rather that workers don’t have the right skills for the jobs that are available. This is known as structural unemployment, a situation where there is a mismatch between the available jobs and the skills of the workers who need jobs.

There are some simple implications of the existence of a problem of widespread structural unemployment. We are asking about a widespread problem because we are trying to find an explanation for 15 million people being unemployed. They are always narrow niches of the labor market where employers may find it difficult to find workers with the right skills. However, you cannot re-employ 15 million people in these narrow niches.

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

On January 9th, CEPR released a paper titled “Haiti’s Fatally Flawed Election” that described the results of an independent recount of all 11,181 vote tally sheets from Haiti’s November 28, 2010 presidential election.  CEPR’s review found that based on the number of irregularities in the tally sheets, it is impossible to determine who should advance to second round elections, and that if there were a second round, it would be based on arbitrary assumptions and/or exclusions. The paper received a lot of attention in the press from, e.g, the BBC, The Independent (UK), CBC, and AP and was featured in this article in the Toronto Globe and Mail. It has also been cited by prominent figures such as Rep. Maxine Waters and Haiti’s former Ambassador to the U.S., Raymond Joseph (in a Wall Street Journal op-ed).

On January 11, 2011, CEPR received a copy of a draft of the Organization of American States’ (OAS) “Expert” Mission of the election. CEPR then put out an issue brief that exposed flaws in the OAS Mission’s analysis. Both the initial paper and the issue brief had a great deal of impact in Haiti (Both the paper and the issue brief are available in English, Spanish and French). The U.S., France, UN, and EU have exerted pressure on Haitian President René Préval to accept the OAS recommendations regardless of the OAS Mission report’s flaws, and he has been using CEPR’s report to strengthen his arguments against accepting the OAS’ conclusions.
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This is the second install of a new weekly feature at the CEPR blog. Every Friday, we'll post a list of labor market related policy research reports from progressive research centers around the country. This week, reports from the Center for American Progress (CAP), the Center on Budget and Policy Priorities (CBPP), the Economic Policy Institute (EPI), the Institute for Women's Policy Research (IWPR), and the Political Economy Research Institute (PERI).
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Last August, the Congressional Budget Office projected that the budget deficit in 2011 would be $1.066 trillion. Two days ago, the CBO revised the projection upwards by 39 percent to $1.480 trillion. What drove the projected deficit to rise by $414 billion in the last few months? Has there been a burst of new spending out of Congress? Absolutely not. In fact, projected spending has fallen by $5.5 billion since August. Rather, projected revenues have fallen by $419 billion.

Of the $419 billion decrease in projected revenues, $354 billion of this was directly attributable to the tax cuts enacted during the recent lame-duck session. The deal did include $37 billion in new spending-- $35 billion of which was extension of unemployment benefits—but the fact that total spending fell by $5.5 billion means that falls in projected non-UI spending more than made up for the new spending.

Given that the projection for total spending has fallen, the budget numbers may look a little funny out of context. The "on-budget" numbers—excluding the Social Security surpluses and net cash flow of the Postal Service—show an increase in projected spending of $74.3 billion. This was entirely due to the payroll tax cut. Instead of cheating current beneficiaries by running down the trust fund, Congress moved $84 billion of Social Security spending on-budget. Outside of that accounting change, on-budget spending fell by $10 billion.

In short, it is true that CBO's projected deficit for 2011 has grown since August, but clearly it has nothing to do with increased spending.

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A plunge in imports contributed 2.4 percentage points to the 3.2 percent growth rate in GDP for the fourth quarter of 2010, according to the latest Bureau of Economic Analysis' report on the Gross Domestic Product. With imports falling at a 13.6 percent annual rate in the fourth quarter, the replacement of foreign-produced goods by domestically produced goods was the largest factor propelling growth. Consumption of durable goods, led by a surge in new car purchases, added another 2.26 percentage points to growth for the quarter.

The drop in imports was clearly associated with the slower pace of inventory accumulation. Inventories grew at just a $7.2 billion annual rate, compared to a $121.4 billion rate in the third quarter. Many of the goods that end up in inventories are imported so the two components generally fluctuate together. The slower pace of inventory accumulation subtracted 3.7 percentage points from GDP growth. Final sales of domestic product grew at a 7.3 percent rate in the quarter.

For more info, check out our latest GDP Byte.

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It is disappointing that in a speech intended to help Americans understand the state of the union, President Obama failed to take note of the extent of the country’s economic pain and the role that Wall Street greed and the deregulation of financial markets played in creating the economic crisis. The country continues to confront a relentless mortgage crisis and stubbornly high unemployment. The nation needs seven million new jobs just to get back to where we were in December 2007 – and we need even more jobs than this today because we’ve had three years of growth in the working age population. Solving the jobs crisis – more than 14 million workers are unemployed and the figure rises to 25 million if we include those who are underemployed – needs to be at the top of the national agenda. Yet it received no mention in the President’s description of the State of the Union.

The State of the Union was very much focused on the future, and winning it. The unabashedly optimistic view of America as a country that is open for business and does big things apparently precluded any discussion of the past, of how we got into the recession and financial crisis, and any discussion of unpleasant realities like the millions of people who have lost their homes or their jobs and have plunged from economic stability into extreme economic insecurity.

While unemployment was not addressed, there were two concrete proposals in the SOTU.

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Home prices continue to fall, dropping a full percentage point in November, according to the Case-Shiller 20-City index. Nineteen of the 20 cities in the index showed a decline in prices, with the sharpest declines occuring in Atlanta, Chicago, Cleveland, Detroit and Minneapolis. San Diego was the only city where prices rose, albeit by only 0.1 percent. The 20-city index has fallen at an annual rate of 11.9 percent over the last three months and is down by 1.9 percent year over year.

The price declines continue to be led by the bottom third of the market, which is in a virtual free fall in several cities. In Atlanta, prices for homes in the bottom tier fell by 9.4 percent in November and have fallen at a 69.6 percent annual rate over the last three months. In Minneapolis, prices for bottom-tier homes fell by 1.7 percent in November and dropped at a 40.9 percent annual rate over the last three months. The annual rate of decline for bottom-tier homes over the last three months was 16.3 percent in New York, 21.7 percent in Boston, 28.8 percent in Chicago and 31.8 percent in Portland.

For more info, check out our latest Housing Market Monitor.

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The labor market recession continued to exact a toll on union membership in 2010. According to the latest Bureau of Labor Statistics Union Membership report, the unionized share of the U.S. workforce dropped to 11.9 percent last year from 12.3 percent in 2009. The private sector unionization rate fell to 6.9 percent in 2010, from 7.2 percent in 2009.

Even as employment losses slowed in 2010, unions continued to lose members, compared with 2009 where union membership and overall employment decreased at about the same rate. In 2010, union rolls shrank by about 600,000 members. Over 2009 and 2010, the Great Recession helped to reduce union rolls by more than 1.3 million members. In the absence of federal support for state and local governments, public sector cutbacks will continue to depress the overall union membership rate.

For more info, check out our latest Union Membership Byte.

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A new feature here at the CEPR blog. Once a week, we'll post a list of labor market related policy research reports from progressive research centers around the country. This week's batch includes new reports from CEPR, the Center for American Progress (CAP), the Center on Budget and Policy Priorities (CBPP), Demos, the Economic Policy Institute (EPI), the Institute for Research on Labor (IRLE) and Employment at UCLA, and United for a Fair Economy (UFE).

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On Saturday, the New York Times ran an interesting piece on older workers. According to Bureau of Labor Statistics data cited in the story, the US workforce is a lot older now than it was at the onset of the Great Recession in December 2007. Total employment of workers under the age of 55 is down (way down for 16 to 24 year olds), but the total number of workers age 55 and older is up almost eight percent:

Total employment, by age, 2007-2010

Source: New York Times.

The piece is a good overview of recent developments, but could give readers the misimpression that the labor market is performing well for older workers. In fact, older workers have not been spared in the economic downturn. Indeed, their continued presence in the labor market is more likely a sign of economic stress than of economic success.

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Between 2008 and 2009, unemployment increased from 5.8 percent to 9.3 percent, the largest one-year increase on record (which goes back to 1948). Over the same period, the number of Americans without health insurance coverage rose by more than four million—from 46.3 million in 2008 to 50.7 million in 2009—and low-income people lost insurance at a greater rate than Americans overall. Thus, it isn't surprising that the Census Bureau's official poverty estimates show that the number of people who were impoverished in 2009 increased by 3.74 million, and the poverty rate increased from 13.2 percent in 2008 to 14.3 percent in 2009.

More surprising is an "alternative" poverty estimate Census quietly released earlier this month. This estimate, highlighted today in a New York Times editorial, shows no increase in poverty between 2008 and 2009. Given the record increase in unemployment and huge decline in health insurance coverage, especially among low-income people, could this alternative estimate showing no increase in poverty really be correct? 

The short answer is no, but it takes some unbundling of the numbers to understand what's going on. Certain benefits that were expanded in the Recovery Act, particularly food stamps and refundable tax credits, are not currently counted in the official poverty measure. The alternative poverty measure cited by the NYT counts these benefits. Thus, one explanation of the apparent disconnection between unemployment and poverty is that the food stamp and refundable tax credit provisions in the Recovery Act were large enough (and targeted in a way) that prevented any actual increase in poverty.

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In advance of Martin Luther King Day next Monday, United for a Fair Economy has released its 8th annual "State of the Dream" report, surveying the economic challenges facing workers of color. The 2011 edition focuses on the impact of economic austerity on African American and Latino workers.

The report documents several ways in which the austerity agenda sweeping Washington hurts the African American and Latino middle- and working-class.

(1) Tax cuts for the rich flow overwhelmingly to whites.


(2) "The attack on the public sector through pay freezes, furloughs, layoffs and proposed cuts is an attack on Black workers," who are disproportionately employed in federal, state, and local government.


(CEPR ran the numbers used to produce this chart. The report also cites other numbers from CEPR.)

(3) Because a higher share of African Americans and Latinos are poor, "[c]uts to social safety nets hit Blacks and Latinos hardest."


(4) Because African American and Latino workers also face the highest rates of unemployment, the failure to create a large-scale jobs program hurts them most.


You can download the full report here.

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On December 6, the President said "there is no reason that ordinary Americans should see their taxes go up next year." Apparently, the Administration staff who negotiated the deal found a reason. According to the Urban-Brookings Tax Policy Center, some 51 million taxpayers will see their taxes go up in 2011.  The vast majority of them—40 million tax units—are low-wage workers with incomes below $35,000. Low-income workers are the only income group that will lose income this year compared to 2010 under the deal. Other groups, including most middle-income families and nearly all high-income ones, will receive a bigger tax cut in 2011 than in 2010.


Although a few news outlets have reported this fact, it is not widely understood by the public, or even by most advocates and analysts working on policy related to low-income families. This is partly due to the White House's failure to acknowledge the hike. Instead, when it announced the deal, the White House Press Secretary touted the extension of some tax cuts for low-income families with children and stated that "working families won't see their tax cuts go away next year."

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As Dean Baker pointed out earlier today, the drop in the unemployment rate announced this morning was due in large part to people giving up looking for work and dropping out of the labor force. There don't appear to be any areas of the economy with strong job growth now, nor for the rest of 2011.

One potential bipartisan job creation strategy is work-sharing. Just before the election, the Frum Forum highlighted it as "A New Jobs Stimulus the GOP (and Dems) Can Back." And Dean teamed up with Kevin Hassett of AEI last year in a joint op-ed in the LA Times to explain the good reasons to use work-sharing to create jobs and avoid layoffs.

Work-sharing (a.k.a. short-time compensation) already exists in 18 states. According to the U.S. Department of Labor,* there were over 153,000 participants across the nation in June 2009, a more than 12-fold increase from just over 12,000 participants in January of 2007. With work-sharing claims averaging a bit over 1/4 of a job, that represented about 40,000 full-time equivalent jobs during the peak weeks.


Participation has varied widely from state to state. Rhode Island has seen the highest participation rates, with a peak of close to 7,000 participants, or over 1,800 FTEs, in May 2009. Over 20% of unemployment insurance claims in Rhode Island were from work-sharing when the program was at its peak.

That's a lot of folks who have been able to keep their jobs, and most of their pay, during the recession. Just imagine if more states performed as well as Rhode Island. 

And it's not too late. Since employers both hire and fire workers every month, the reported jobs numbers are the net total of jobs created and lost. Work-sharing would help lower the unemployment rate by reducing the extent of layoffs.

*Source: Employment and Training Administration, U.S. Department of Labor.  Please contact CEPR if you'd like to see the data.

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