This week, the seemingly never-ending fiscal policy skirmishes on Capitol Hill revolved around proceeding to a conference committee to hammer out an FY2014 joint budget resolution compromise. Unlike recent years, this budget season has seen both House Republicans and Senate Democrats produce and pass budget resolutions. Now Congressional Democrats are interested in moving forward on discussions toward a budget for FY2014. The problem? After haranguing Senate Dems for not having produced a budget resolution since 2009—before Senator Patty Murray (D-WA) was chairwoman of the Budget Committee—and maligning President Obama for being late in producing his budget alternative, Republicans are refusing to appoint conferees and commence a budget conference committee. Instead of moving forward with the budget process, the GOP has insisted on conditioning the appointment of conferees with an insistence that any conference report not include any new revenue or raise the debt ceiling. In other words, a non-starter.

Given how broken the budget process has been of late, it’s worth a reminder on what a normal spring budget season should look like. Each year, Congress is supposed to develop a joint budget resolution that sets limits on spending, particularly appropriations, as well as targets for federal revenue. After the Office of Management and Budget publishes the president’s budget request in early February, the House and Senate Budget Committees draft and mark-up budget resolutions, which then go to their respective chamber floors for votes (assuming they make it out of committee markup). If adopted in both chambers, a conference committee is then convened between the two bodies to resolve differences between their budget resolutions. (While this notionally is supposed to take place by April 15, it often takes longer.)

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A roundup of what EPI experts found interesting in the news today:

• How Social Networks Drive Black Unemployment (New York Times)
  
• Seven Myths about Keynesian Economics (Fiscal Times)
• Surprise fast food strike planned in St. Louis (Salon)

As part of the sequester, roughly $2.4 billion is being cut from emergency unemployment insurance compensation (see page 40 of this OMB report (pdf)).

These cuts cause damage in two ways. Most obviously, they mean that unemployment insurance benefits now provide a weaker lifeline to the long-term unemployed and their families, despite the fact that job opportunities have improved very little since the unemployment rate peaked near the end of 2009.

Less well understood is the fact that cutting unemployment insurance benefits will reduce spending in the economy and thereby cost jobs. While the cuts save an estimated $2.4 billion in government spending on unemployment insurance, the loss to the economy is much greater because these cuts have a large “multiplier” effect. Long-term unemployed workers, who are almost by definition cash strapped, are likely to immediately spend their unemployment benefits. Unemployment benefits spent on groceries, clothes and other necessities increase economic activity, and that increased economic activity saves and creates jobs throughout the economy. For this reason, economists widely recognize government spending on unemployment insurance benefits as one of the most effective tools for generating jobs in a downturn. The flip side of this is that cutting spending on unemployment insurance benefits during a period of economic weakness is one of the most costly tools available for reducing the deficit. Reducing spending on unemployment insurance by $2.4 billion will pull about $3.8 billion in economic activity out of the economy—economic activity that would have been supporting around 30,000 jobs.1 In an economy that is generating jobs at a pace that won’t restore full employment for at least another five years, this is incomprehensible.

1. Calculated using methodology described here.

Here’s what we read today and throughout the week.

• The Next Priority for Health Care: Federalize Medicaid (The Century Foundation)
• Congress Mentions Jobs Dramatically Less (Huffington Post)
• It doesn’t add up (Columbia Journalism Review)
• Suicide Rates Rise Sharply in U.S. (New York Times)
• Perverse advantage (The Economist)
• Bangladeshis turn rescuers after building collapse (AP)
• How Van Halen Explains the U.S. Government (Bloomberg)
• Budget Cuts Devastate Meals On Wheels: Enrollment Slashed, Services Cancelled (Think Progress)
  

Recently, barely-perceptible cracks have started to appear in the political foundations of austerity. Prominent Democrats on Capitol Hill—not just progressives but moderates and those who have embraced the administration’s pursuit of a “Grand Bargain” on deficit reduction—have recently called for an implicit time-out on fiscal tightening. Some European policymakers have similarly argued that austerity has gone too far. And prominent financial market players have warned that the United Kingdom should reverse its rapid drive towards austerity. Perhaps most surprisingly, even John Makin from the conservative American Enterprise Institute has called for an end to tightening.

It’s about time. The intellectual foundations for austerity have always been fragile. The recent controversy that erupted over a group of University of Massachusetts economists highlighting the extreme weakness of an oft-cited justification (pdf) for keeping debt ratios below 90 percent is just the latest demonstration of this. The UMass paper was important, but is only the latest and most well-known of the many refutations (pdf) of the case (pdf) that contractionary fiscal policy would produce (pdf) anything but contraction in today’s economy.

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The latest issue of the Boston Review features a thought-provoking essay by MIT Professor Richard Locke entitled “Can Global Brands Create Just Supply Chains,” as well as a series of responses (including one I authored that this blog draws from). Locke surveys several decades of efforts to improve global labor standards. Using Nike as the primary case study, Locke concludes that private, voluntary regulation—the leading approach he says has emerged to address working conditions that fall short of basic labor standards—has essentially failed.

My response notes the many parallels between the Nike case study and the current situation regarding Apple. As with Nike, Apple’s elevated commitment to improving labor standards has been largely driven by the desire to mitigate what had become a public relations nightmare undermining its brand—in Apple’s case a series of New York Times and other high-profile stories describing the brutal living and working conditions faced by the workers making its products. As with Nike, Apple’s primary response has been private regulation, another way of saying that the company is pushing for reforms itself, through its Supplier’s Code of Conduct, expanded audits of its suppliers and conversations with its suppliers.

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Since late 2010, the U.S. economy has been adding an average of around 175,000 jobs per month. Because this pace has persisted for so long, there is a real danger that it’s beginning to be considered the “new normal,” the pace of growth people assume is the best the economy can do. It’s important to demonstrate just what this rate of job-growth implies for restoring the U.S. labor market to even conservative standards of health.

As of March, I estimate that the U.S. economy needs 8.8 million jobs to get back to the labor market health that we had in December 2007.

This estimate takes into account both how far we are below the Dec. 2007 jobs level (we’re still 2.8 million jobs short of what we had before the Great Recession hit) and the number of jobs we should have added since Dec. 2007 just to keep up with growth in the potential labor force (6 million jobs). Conceptually, this measure is what it would take to restore the labor market to the Dec. 2007 unemployment rate (5.0 percent) at today’s “structural” labor force participation rate, meaning it fully takes into account the fact that demographic shifts since 2007—like baby boomers hitting retirement age—and other “non-cyclical” factors mean that a somewhat lower share of the overall population should be seen as potential workers today than in 2007.1

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As Congress pursues comprehensive tax reform, policymakers have made numerous references the 1986 Tax Reform Act, which has been the principle framework for overhaul to date.

The 1986 reforms are revered because they succeeded politically, passing a divided Congress and enacted by a lame-duck president. Comprehensive reform today similarly would have to overcome major political hurdles, particularly Republican intransigence over raising revenue. Yet many policymakers today seem unaware that 1986-style reform is no longer viable.

The 1986 model was designed to be both revenue neutral and distributionally neutral—meaning that average tax rates would remain roughly unchanged across incomes. Replicating these objectives today would imprudently disregard shifts in the economic and budgetary landscape. The Bush-era tax cuts enacted a decade ago violated the spirit of the 1986 reforms by lowering revenue and shifting the burden of taxation further down the income scale. In so doing, they contributed to sizable structural budget deficits and revenue levels inadequate to support the baby-boomers’ retirement (an outlook essentially unchanged by the lame duck budget deal). And today, rising income inequality—exacerbated by reductions in top tax rates—has surpassed Gilded Age levels.

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Happy Tuesday! Here’s what we read today:

• The Myth of America’s Tech-Talent Shortage (The Atlantic)
• How the Mainstream Media Broke Up With Austerity (New York Magazine)
• GOP’s debt limit threat goes off the rails (Washington Post)
• Six In The City: More Car Washers Vote To Unionize (Labor Press)
  

Last week, The Century Foundation hosted a Twitter chat forum in which Mike Konczal of the Roosevelt Institute, TCF fellow Mark Thoma and I discussed the Reinhart and Rogoff kerfuffle and its implications for the policy debate over austerity (here’s the Storified “transcript”). Nearly every facet of this incident has been thoroughly covered in the blogosphere—see Mike’s post for a summary of the Herndon, Ash, and Pollin (2013) paper debunking R&R; Arindrajit Dube’s post on reverse causation; my colleague Josh Bivens’ post on R&R’s response to reverse causation criticism; Paul Krugman on R&R’s obfuscating rebuttal; and Dean Baker’s post on R&R’s purported role in the policy debate.

But what’s gone entirely missing, as far as I can tell, and what I struggled to explain in sub-140-character increments, is that R&R’s reported finding—that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower [and slightly negative]”—couldn’t justify austerity even before it was debunked.

Back in early 2010, pundits and policymakers immediately seized on R&R’s now-invalidated results to justify austerity policies, so the paper’s methodological debunking has been correctly interpreted as a major defeat for the austerity movement. But the Beltway interpretation of R&R was based on a false premise from the get-go. Robert Samuelson’s predictably unhelpful addition to the R&R debate—his half-hearted defense of R&R’s “minor mistakes” is scattered with objectively inaccurate revisionist history—perfectly encapsulates this widely propagated false dichotomy: “It’s ‘austerity’ versus ‘stimulus.’ If debt exceeding 90 percent of GDP is hazardous, then the case for austerity seems stronger.” (Emphasis added.)

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