Mark WeisbrotThe Guardian Unlimited, October 3, 2012En Español

Journalists, pundits, politicians and the public will undoubtedly pay a lot of attention to the unemployment numbers that will be released this Friday.  It's important to understand whether the reasons for current unemployment are mainly structural -- that worker's skills or geographic location don't match up to available jobs -- or cyclical -- that there just aren't enough jobs out there.

CEPR, along with plenty of other economic experts, agree that no matter how you look it, current unemployment is mostly cyclical -- there just isn't enough demand in the economy.  CEPR's John Schmitt and Kris Warner explain why it's so important to get this right:

The distinction between structural and cyclical unemployment has crucial implications for economic policy. If unemployment is “structural” then government policy that seeks to increase demand – low interest rates or fiscal stimulus, for example – will have little or no effect on the national unemployment rate and could even make matters worse by igniting inflation. If unemployment is “cyclical,” however, then expansionary  macroeconomic policy can lower unemployment substantially with little or no risk of inflation.

Their detailed paper, "Deconstructing Structural Unemployment," looks at 2 arguments for structural unemployment, and find little support for either:

The first argument is that if unemployment is structural, then there would be evidence that the large supply of unemployed construction workers lack the skills needed to find new jobs in other sectors of the economy. While construction workers have indeed suffered disproportionately in the downturn (due to the bursting of the housing bubble), it turns out that  they have also been at least as successful in coping with the hostile labor market of recent years as workers displaced from other sectors. And construction workers’ skills are at least as well matched to the available jobs as workers displaced elsewhere in the economy.

The second argument is that falling house prices have reduced the mobility of unemployed workers — creating a “house lock” in which unemployed workers, who would otherwise relocate to regions with jobs, are stuck in high unemployment areas.The downturn in the housing market also appears to have had no measurable effect on the geographical mobility of displaced workers, but the economic effects are small, raising the pool of the unemployed by only a few percent (and the unemployment rate, by a much smaller amount).

Ross Douthat is the third columnist this week who is trying his hand as a Romney speechwriter following on an effort by Robert Samuelson on Monday, and David Brooks on Tuesday. Let's see what he's got.

Douthat has a plan for what Romney should "tell the 47 percent." He begins by noting that Romney is at best even with President Obama among white working class voters outside of the South. He tells readers that Romney is even losing some voters who are convinced that Obama is really Kenyan. The problem is that they think Romney is for the rich. Anyhow, Douthat has some plans to convince the 47 percent otherwise.

His begins by mentioning two items that it would be great to see any politician champion. The first is a plan by Glenn Hubbard, one of Romney's top economic advisers, to allow underwater homeowners to refinance at low interest rates. While President Obama has already embraced part of this package (all underwater homeowners with loans guaranteed by Fannie Mae and Freddie Mac can now refinance their loans), there are other parts that could still profitably be pursued. 

Hubbard's proposal calls for eliminating excess costs in the financing process that increase the gap between the rates paid by borrowers and the interest received by lenders. These are all the fees that go to mortgage brokers, title insurers, closing lawyers. There are tens of billions of dollars wasted every year on these middle people who contribute virtually nothing or nothing to the process. If Romney, Obama, or anyone else can push through measures that would reduce these costs, that would be great policy.

The other item on the table is breaking up too big to fail banks, a policy recently trumpeted by that well know socialist, George Will. True believers in markets don't want the government to subsidize banks with an implicit guarantee. This is just a handout, but most politicians from both parties have been happy to use taxpayers dollars for this purpose. (Question for Romney: are the subsidizedWall Street bankers part of the 47 percent?)

Okay, but let's get to the speech. The first item is to assure the 47 percent that Romney would not raise their taxes:

"Whatever shape tax reform ultimately takes, under my administration, no middle or working class American will pay a penny more in taxes than they do today. Not a penny more. And to prove that I’m serious about protecting working families, tonight I’m calling for a four-year extension of the payroll tax cut, so that Americans don’t have to worry about seeing their tax bills go up an average of $1000 when the cut expires next year."

Octubre 2012, Mark Weisbrot y Jake Johnston

The USAID Inspector General (OIG) released an audit this weekend of Chemonics’ Haiti Recovery Initiative II program (HRI-II), funded by USAID. HRI-II, the successor to the HRI program which began right after the earthquake, aims to “help Haiti strengthen its economy and public institutions in the three strategic development corridors of Port-au-Prince, Saint-Marc, and Cap-Haitien,” according to the OIG. But, as the Associated Press reports today:

A newly released audit says the largest U.S. contractor working to stabilize Haiti after the 2010 earthquake is “not on track” to compete its assignments on schedule, has a weak monitoring system and is not adequately involving community members.

The audit is the second since the earthquake to find significant problems with Chemonics’ work in Haiti. The AP reported in December 2010:

And an audit this fall by USAID's Inspector General found that more than 70 percent of the funds given to the two largest U.S. contractors for a cash for work project in Haiti was spent on equipment and materials. As a result, just 8,000 Haitians a day were being hired by June, instead of the planned 25,000 a day, according to the IG.

Nevertheless, Chemonics has been the largest single recipient of post-earthquake funding from USAID. For the two HRI programs, Chemonics has received $103.8 million. This same process played out in Afghanistan, where despite consistently failing to produce results, Chemonics continued to receive hundreds of millions of dollars in contracts.

Weak Monitoring and Evaluation

One consistent pattern that has clearly emerged in the aftermath of the earthquake is the lack of oversight of contractors by USAID. As we have described before, after years of hollowing out USAID, it has “turned into more of a contracting agency than an operational agency with the ability to deliver,” in the words of Hillary Clinton. In turn, much of the monitoring and evaluation is actually the responsibility of the contractor itself. USAID’s contract with Chemonics contains numerous reporting requirements, yet allows the contractor to fulfill most of them without any oversight. Chemonics is required to keep an “activity database,” but the contract notes that Chemonics is responsible “for ensuring that the database contains accurate, complete, and up-to-date information.” Additionally, the contract states that USAID and Chemonics “are expected to jointly develop a system of processes and tools for the monitoring and evaluation of the country program.”

As the newly released audit finds however, both the database and the evaluation tools were poorly implemented and “made it difficult to measure the program’s impact,” as well as contributed to delays which have made the program “not on track to complete all activities.”

 

Dean Baker
Truthout, October 1, 2012

Dean Baker
Al Jazeera English, October 1, 2012