Senate Budget Committee Chairman Patty Murray (D-WA) introduced, and the Senate passed, a Senate Democratic FY2014 budget resolution, which would purportedly place the public debt ratio on a more-than-sustainable trajectory down to 70.4 percent of GDP by fiscal 2023. The Murray budget deserves credit for mitigating the macroeconomic drags posed by sequestration, modestly increasing infrastructure investment and proposing substantial revenue increases. But in the end, the budget’s fixation with ten-year deficit reduction targets would result in premature near-term austerity.

The Murray budget proposes to raise an additional $923 billion in revenue over the next decade relative to current law. It also assumes that temporary tax provisions that would cost $954 billion to continue over the decade will either expire or be paid for—so against a current policy baseline in which these “tax extenders” are continued, the budget would raise $1.9 trillion.1 Revenue increases exert an economic drag, particularly while the economy remains weak, but are much less damaging per dollar than spending cuts. The Murray budget would use these revenue increases to partially replace the front-loaded, poorly designed sequester; in that context, the tax increases would help avert near-term austerity that is much more damaging. The budget would also slightly increase government spending in 2013 and 2014 relative to current policy—which assumes the sequester is repealed—and raise tax revenues in 2014.2Read more

The student workers who recently went on strike at McDonald’s in Harrisburg, Pennsylvania took a big chance. They could have been fired and then deported from the country. Instead, they got their boss fired and got a meeting with the head of the State Department program that brought them to the U.S. But they aren’t finished: they want to make sure that what happened to them never happens to foreign students again.

My colleagues and I met with four of the young workers last week, who came from Peru, Paraguay, Chile and Argentina. All had been recruited into the State Department’s J-1 summer work travel visa program by GeoVisions, a State Department-approved sponsor, which promised them three months of steady wages for slinging Big Macs, decent housing and a cultural experience, followed by a month of travel wherever they wanted to go.

What they and 14 other students got was an unpredictable mix of work hours—as little as four hours in a week for some and 25 hours in a row for others. They were required to live in the basements of homes owned by their boss, Andy Cheung, who packed six into one house and eight into another, jammed together with little privacy—only a curtain to separate the beds of four young men from four women. They were cheated on wages they earned, overcharged for their housing and forced to walk to work on highways instead of riding in free transportation they’d been promised. At least one was actually in debt to Cheung after almost 3 months of work.Read more

Dylan Matthews at Wonkblog posts a graph from Robert Lawrence and Lawrence Edwards that purports to show manufacturing employment declines are simply a capitalist inevitability. It’s essentially this graph:

So, if manufacturing employment is always shrinking as a share of overall employment, the implicit argument is that nothing– say very large trade deficits that characterized the past decade and a half in the American economy – can really affect this trend one way or the other.Read more

A common theme has emerged in recent punditry and economic analysis: policymakers should begin withdrawing support for growth and jobs because the economy is rapidly improving. In recent months one can find several examples of commentators urging the Federal Reserve to abandon its efforts to boost activity and jobs and begin tightening to forestall (so far completely hypothetical) inflation. And any call for fiscal support for job creation on a real scale is greeted with hand-wringing about its riskiness—as can be seen in much reaction to the  Congressional Progressive Caucus’s “Back to Work” fiscal 2014 budget alternative (BTWB, henceforth), which would invest $2.1 trillion in job creation measures over 2013-2015.

For example, David Brooks criticized the BTWB on the (incorrect) grounds that the economy “is finally beginning to take off…[as there is no longer] a large and growing gap between the economy’s current output and what it is capable of producing.” And a recent column by Ezra Klein contained concerns from Moody’s Analytics chief economist Mark Zandi that the BTWB  targets job growth too aggressively, meaning that: (a) the overall economy has recovered enough (or surely will) that it doesn’t need this boost; and (b) that recovery has been and will be sufficiently fast that even the estimates of how much fiscal support will boost jobs and growth are overstated.

We strongly disagree. The economy remains deeply depressed, and the coming year will see a significant drag on already inadequate growth from further fiscal contraction (sequestration on top of deepening discretionary spending cuts and expiration of the payroll tax cut). Given this, there’s no reason at all to think that fiscal expansion would be less effective than in the past 3-4 years, and there is certainly no reason to gamble on a robust recovery without policy help.Read more

David Brooks recently wrote a misguided column criticizing the Congressional Progressive Caucus’ Back to Work fiscal 2014 budget, which the House voted on yesterday. I am proud that EPI budget analysts and I worked closely with the CPC on the proposal’s development and analysis, so I want to clarify where Brooks went wrong.

Brooks and I disagree in two major areas: differing evaluations of the state of economic recovery and prospects for growth, and the role of rich people and the government in generating growth.

Brooks sees an economy that “is finally beginning to take off” and no longer has “a large and growing gap between the economy’s current output and what it is capable of producing.” In contrast, I see an economy with 7.7 percent unemployment, and unemployment projected by the Congressional Budget Office to be roughly 7 percent by the end of 2015. Current unemployment is comparable to that of the worst month of the early 1990s recession and substantially higher than that of the worst month of the early 2000s recession.

Furthermore, the U.S. economy in late 2012 was running $985 billion (5.9 percent) below potential output for the year—which is equivalent to each person losing $3,100 (annually). I will grant Brooks that this “output gap” is not currently growing larger. Nevertheless, the gap has not changed much in two years (it was 6.1 percent in the second half of 2010) and is now much higher than the worst quarters of the recessions in the 1970s, 1990s, and early 2000s (5.0, 3.6, and 2.1 percent respectively). In short, the gap is no longer “large and growing”; it is just “large and not shrinking” and looks relatively stable. The depressed economy is suppressing wage growth (there have been no improvements in wages and benefits for the large majority of American workers for more than ten years!) and we are scarring a generation of young people—both those in school as well as those searching for the bottom rungs of a career ladder. This state of affairs is unacceptable and, therefore, government policy should not accept it.Read more

In an effort to obtain a Grand Bargain on deficit reduction, the Obama administration has offered to accept a Republican proposal for a new inflation index—a chained CPI—in setting the annual cost of living adjustment (COLA) for Social Security benefits. This new inflation index would also apply to the indexation of income tax brackets. Since a chained CPI is expected to show lower inflation, the change in indexation will mean lower COLAs and greater revenues over time. This is the first of two posts articulating why accepting a chained CPI for calculating the Social Security COLA is a bad policy choice. The other post will address the chained CPI proposal in the context of Social Security policy. This post addresses whether a chained CPI is simply a “technical fix,” as some maintain, to obtain an accurate measure of inflation. I pay particular attention to my disagreements with my friends at the Center on Budget and Policy Priorities (CBPP).

A better measure of inflation?

Let’s be straight, a chained CPI is not a more accurate measure of inflation for setting the COLA for Social Security beneficiaries. There is a good argument to be made for any given reference population that a chained CPI index is more accurate than an unchained index. However, this “any given reference population” is an important caveat: applying a chained CPI for average consumers to calculate price increases faced by Social Security beneficiaries is not an improvement in accuracy since the expenditures of Social Security beneficiaries, especially the elderly, are very different than the average consumer. As experts have pointed out, indices based on the spending patterns of workers or the general population likely understate the impact of cost increases faced by Social Security beneficiaries because seniors and disabled people spend a greater share of their incomes on out-of-pocket medical expenses than do other consumers, and health costs have risen faster than overall inflation in recent decades. This has been documented in the Bureau of Labor Statistics’ (BLS) CPI-E inflation measure which uses consumption weights specific to the elderly and had 0.2 percent faster inflation from 1982 to 2007 than the measure currently used to index Social Security benefits.

So, what this means is that there are two known biases to current Social Security COLA indexation, the failure to chain expenditures (which overstates inflation) and the failure to adopt weighting particular to Social Security beneficiaries (which understates inflation). Yet too many inside the Beltway only seem interested in correcting the first. And why this narrow focus? The only rationale for imposing a new inflation measure on the elderly that only addresses the chaining bias is to reduce benefits.Read more

What we read today (and yesterday):

• Small Infrastructure Gains Are Observed in Engineering Report (New York Times)
• Gender Bias Seen in Visas for Skilled Workers (New York Times)
• Tax Credits or Spending? Labels, but in Congress, Fighting Words (New York Times)
• Lawmakers hear from CEO opponents of H-1Bs (Computer World)
  
• Statement by Arindrajit Dube, Ph.D, Senate hearing on “Keeping up with a Changing Economy: Indexing the Minimum Wage” (PDF)

House Budget Committee Ranking Member Chris Van Hollen (D-MD) has introduced the House Democratic FY2014 budget alternative, which would lessen the near-term economic drags left in place by the lame-duck budget deal. While understandably less ambitious in terms of job creation than the Congressional Progressive Caucus’s “Back to Work” budget, the Van Hollen budget deserves credit both for financing some renewed fiscal expansion to boost growth and for fully averting the macroeconomic drags posed by sequestration.

The Van Hollen budget adopts job creation proposals from the president’s jobs package (in his fiscal 2013 budget request), financing $174 billion in stimulus spending over fiscal 2013—2015.1 These stimulus provisions include $55 billion for rehiring teachers and modernizing K-12 schools, $37 billion in infrastructure investments, and $19 billion for a targeted tax credit for businesses that increase payroll, among other policies. Relative to current budget policy (which assumes the sequester is repealed), the Van Hollen budget would increase government spending in fiscal 2013 and 2014, as well as cut taxes in 2013.2

On net, we estimate that the Van Hollen budget would boost GDP growth by 0.4 percent and increase employment by roughly 450,000 jobs in 2013, relative to current policy. A smaller economic boost of 0.1 percent of GDP and roughly 110,000 jobs would be expected in 2014. Note that CBO’s baseline forecast shows employment rising by 1.5 million jobs between the fourth quarter of 2013 and the fourth quarter of 2014; these estimates do not suggest that 340,000 jobs would be lost between 2013 and 2014, simply that employment would rise faster and higher than otherwise projected over the next two years.

The Van Hollen budget also replaces sequestration, whereas the current policy baseline presupposes the repeal of sequestration—in keeping with budgetary scorekeeping conventions of the past two years—but which is by no means certain. We previously estimated that sequestration would reduce growth by 0.6 percent and employment by 660,000 jobs in 2013, with the drag growing to 0.8 percent and 910,000 fewer jobs in 2014. So relative to a world in which sequestration remains in effect, the Van Hollen budget would boost employment by more than 1.1 million jobs in 2013 and just over 1.0 million jobs in 2014.Read more

As the “Gang of Eight” senators reportedly continue to work diligently on drafting bipartisan legislation to comprehensively reform U.S. immigration laws, one of the key issues they will try to resolve is how to manage future flows of educated temporary and permanent immigrants who will work in the science, technology, engineering, and math (STEM) fields. A key topic of contention will be the H-1B visa, the principal guest worker program for educated workers in STEM fields. That’s why on March 14 a briefing was held on Capitol Hill to inform Senate staffers about the H-1B program’s impacts on the labor market and job opportunities for U.S. workers in STEM fields. The briefing offered facts and perspectives about the H-1B that are usually ignored or overlooked by the media; including from CEOs who use the program.

Yesterday Politico reported how the briefing would provide balance to the heavy lobbying by the tech industry in favor of the H-1B program. The industry is looking to triple or quadruple the number of guest worker visas available, using the proposed “I-Squared Act” as the model, and without any regard to the reality that unemployment for college-educated STEM workers is still double what it was before the recession. While (if enacted) the I-Squared Act would vastly expand the H-1B program, it does nothing to remedy the loopholes in the program that permit employers to hire a guest worker without first having to recruit qualified and available U.S. workers, and allow the majority of H-1B workers to be vastly underpaid relative to U.S. workers in the same occupation and local area.

Computerworld reported today on two other key messages that came out of the briefing: American students are being discouraged from pursuing STEM careers and many U.S. companies are at a competitive disadvantage thanks to guest worker programs. This absurd result occurs in part because nearly half of the available visas are granted to offshore outsourcing companies with a business model that transfers high tech American jobs overseas. Although globalization is a reality and here to stay – which means some jobs will inevitably relocate from country to country as economic and market conditions shift – the H-1B program is unnecessarily facilitating an exodus of STEM jobs that could just as easily remain in the United States.

The tech industry isn’t lobbying to remedy any of these alarming flaws in the H-1B program, because companies benefit directly from the status quo in the form of the artificially low salaries they are allowed to pay H-1B workers, as well as from an expanded labor pool that keeps wages from increasing for all STEM workers. Yesterday’s briefing offered a range of perspectives on the H-1B program to help explain this: it was moderated by Rochester Institute of Technology professor and engineer Ron Hira, and included the president of the International Federation of Professional and Technical Engineers, an H-1B worker from the Philippines, and two tech company CEOs—Brian Keane of Ameritas Technologies and Neeraj Gupta of Systems in Motion—both of whom have used the H-1B program in the past to hire guest workers (and in the case of Gupta, to send jobs offshore).

Before the briefing took place, Politico wrote that Keane and Gupta would “present a contrast to the defense [of the H-1B program] echoed by most tech industry representatives at a recent House Judiciary subcommittee hearing.” This was correct, and Keane and Gupta’s opening statements are worth reading because they offer unique insight into how the H-1B program is abused and exploited by employers of STEM workers, and they offer compelling reasons why the program should undergo major reforms. Also, they provide smart recommendations on how to fix the H-1B program, and suggest it could be valuable to the American economy and contribute to innovation in STEM fields if it were operating as intended. Both statements are available for download below.

READ: Opening statement of Brian Keane, CEO, Ameritas Technologies

READ: Opening Statement of Neeraj Gupta, CEO, Systems in Motion

Paul Ryan’s FY2014 budget alternative was released earlier this week, and though titled Path to Prosperity, a more appropriate title would be “Path of Austerity.” Ryan’s budget alternative dwarfs the austerity already hitting the economy, such as the expiration of the payroll tax cut, the Budget Control Act spending caps, and the sequestration cuts that just went into effect. His plan would slash spending by $5.7 trillion relative to CBO’s current law baseline and $4.6 trillion relative to his current policy baseline (which removes CBO’s unrealistic extrapolations of war and emergency spending). As my colleague Andrew Fieldhouse detailed in an analysis earlier this week, cuts of this magnitude would have negative impacts on both economic growth and employment. But Ryan’s budget would also have huge impacts on the actual programs themselves, and by extension the people who rely on those programs.

Ryan’s budget doesn’t stretch all to far from his FY2013 budget alternative last year in terms of tone or policy prescriptions, though this year he does propose fully eliminating the projected deficit in ten years. He does this almost exclusively by targeting spending (and to the chagrin of some of his conservative allies, he does not repeal some recent changes to revenue under current law—namely revenue raised under the American Taxpayers Relief Act and some revenue raisers included in the Affordable Care Act).Read more