The House of Representatives voted today on H.J. Res 2, a Balanced Budget Amendment (BBA). Because it would have amended the Constitution, the BBA would have needed a two-thirds majority vote to pass. The final vote count was 261-165, with four Republicans voting against the bill (though some cast their votes because it wasn’t strict enough) and 25 Democrats voting for the bill.

This vote came about directly as a result of the August debt limit agreement, in which conservatives demanded a vote on a balanced budget amendment before the end of the year. Besides requiring the president to submit a balanced budget to Congress each year, this amendment would have required a three-fifths majority vote in order to raise the nation’s debt limit (which, in layman’s terms, would mean more playing chicken with the U.S. credit rating). A number of House Republicans would have preferred to vote on an amendment that included both a spending cap at 18 percent and a two-thirds majority vote requirement in order to raise revenue; this amendment did not include those measures seemingly in an effort to gain more Democratic support.

The term “balanced” budget amendment is misleading – it fools people into thinking it may be a responsible policy to support. This is anything but the case – a BBA would in fact be a gravely irresponsible way to go about addressing our nation’s fiscal issues. Bob Greenstein of the Center on Budget and Policy Priorities sums it up nicely:

“The amendment would raise serious risks of tipping weak economies into recession and making recessions longer and deeper, causing very large job losses. That’s because the amendment would force policymakers to cut spending, raise taxes, or both just when the economy is weak or already in recession — the exact opposite of what good economic policy would advise.”

When recessions hit, spending on unemployment insurance and various other safety net programs, like food stamps, increases as more people fall on hard times (these are called automatic stabilizers). At the same time, revenues fall due to fewer people working and paying taxes. This leads to natural deficits during recessionary times. These deficits then shrink as spending on automatic stabilizers eventually falls and revenue streams eventually pick up. A BBA would not allow this excess spending, and would instead force spending to fall along with revenues. This would be disastrous during economic downturns both macroeconomically and for millions of Americans’ living standards. The Macroeconomic Advisers, an economic forecasting firm, recently provided interesting detail in a blog post regarding what might have happened had a BBA been passed and ratified, and taken effect in 2012. They say:

“The effect on the economy would be catastrophic. Our current forecast shows a Unified Budget deficit of about $1 trillion for FY 2012. Suppose this fall the federal government enacted a budget for FY 2012 showing discretionary spending $1 trillion below our forecast, resulting in a “static” projection of a balanced budget for next year. $1 trillion is roughly two-thirds of all discretionary spending, and about 7% of GDP. Our short-run multiplier for discretionary spending is about 2, and let’s assume a simple textbook version of Okun’s law in which the unemployment gap varies inversely with, but by half as much as, the percentage output gap. Then, instead of forecasting real GDP growth of 2% or so for FY 2012, we’d mark that projection down to perhaps -12% and raise our forecast of the unemployment rate from 9% to 16%, or roughly 11 million fewer jobs. With interest rates already close to zero, the Fed would be near powerless to offset this huge fiscal drag.”

In sum, if a BBA had been in place, it would have resulted in catastrophically lower GDP growth for FY 2012 and catastrophically higher unemployment. A BBA is a bad idea that does not deserve the falsely positive term “balance” in its title.

Representative Denny Rehberg (R-MT), Chairman of the Labor-HHS-Education Appropriations Subcommittee, recently launched a massive attack on the federal government’s efforts to improve the labor standards, job prospects, wages and bargaining rights of American workers. His numerous amendments to a major bill to fund the Labor Department and other agencies would block the government’s efforts to improve enforcement of wage laws, make construction work safer, protect the jobs of U.S. workers, reduce the levels of respirable coal dust that causes black lung disease, and give workers a fair chance to have a union if they want one. And where the law is already working to ensure contractors don’t compete for federal construction projects by driving down wages, Rehberg’s amendments would undermine the existing law.

Given that a decent job is the ticket to the middle class, Rehberg’s attack looks like the 1 percent trying to slam the door on the 99 percent.

Rehberg is going after important protections that don’t cost a lot of money. One of his targets is a Labor Department program – Bridge to Justice — that does nothing more than refer workers who’ve been cheated out of wages through the American Bar Association to attorneys with relevant experience. Obviously, Rehberg isn’t trying to save the taxpayers money, he’s simply trying to protect unscrupulous employers.

Rehberg’s legislation fits neatly into the business lobby’s campaign to weaken the National Labor Relations Board, the agency created to protect the right of workers to join unions and exercise their collective bargaining rights. His bill cuts NLRB funding by $49 million and targets rules that inform workers of their rights, enable workers to communicate with each other during union election campaigns, and ensure that union elections are conducted efficiently.

The employer campaign to prevent reforms at the NLRB depends upon misinformation and the fact that the public is largely unaware that union elections look more like those in a one-party state than in a true democracy. The last thing Rep. Rehberg’s corporate allies want is a system that gives full expression to employees’ desires to join together and improve their wages, job security, and working conditions.

Finally, the bill undoes recent rule changes from the Labor Department in the H-2A and H-2B programs that favor the hiring of U.S. workers at prevailing wages over foreign guestworkers for relatively low-skilled jobs as farmworkers, hotel maids, and landscapers. The bill would thus make it harder for U.S. workers to find jobs and would depress wages.

Every one of the two dozen or so labor-related provisions in the bill is bad policy, and one can only hope that Senate Labor-HHS Appropriations Subcommittee Chairman Tom Harkin (D-Iowa) and his Senate colleagues reject them all.

Wednesday, the Congressional Progressive Caucus (CPC) held an ad hoc hearing on job creation. Ten members of the CPC, including co-chairs Raul Grijalva (D-Ariz.) and Keith Ellison (D-Minn.), listened to testimony from five economists and experts, including EPI Research and Policy Director John Irons, EPI board members Rob Johnson and Julianne Malveaux, and Jeff Sachs and Bob Borosage. They also heard from Garrett Gruener, representing the “Patriotic Millionaires.”

All agreed that the supercommittee is headed in the wrong direction. Bob Borosage, co-director of the Campaign for America’s Future, compared the supercommittee to a bus headed straight toward a cliff, with the bus driver fretting about which lane to be in. In his testimony, John Irons hit back against the notion that the supercommittee needs to “go big,” stating there is no indication that markets are worried about U.S. debt or that they would respond any more favorably to a plan that goes beyond $1.2 trillion in deficit reduction. Not only are interest rates low, but Moody’s Investor Services, one of the ratings agencies with the power to downgrade the U.S. rating outlook, stated recently that “failure by the committee to reach agreement would not by itself lead to a rating change.” Irons stated, however, that he believed the market would react if Congress fails to do anything on jobs.

The hearing concluded with Gruener, representing the Patriotic Millionaires, which are a group of very wealthy people who want to see taxes raised on those making over $1 million – people like themselves – for the good of the nation. They lobbied on Capitol Hill Wednesday, urging Congress to raise taxes on those who can most afford it. Gruener, a businessman, testified that not one of his business decisions has been a function of marginal tax rates. He said:

“Not once, and I literally mean not once, have any of my decisions – my personal investment decisions or any of the investment decisions I’ve ever seen in the venture community – been a function of marginal taxes. … We’re not trying to grow companies in which the change of a few percentage points one way or the other is going to make a big difference.”

The supercommittee would be wise to pay more attention to hearings such as these. But though the CPC invited members of the supercommittee to attend, none did.

The Judiciary Committee press release unveiling the Regulatory Accountability Act paints an alarming picture about the relationship between jobs and the economy. House Judiciary Committee Chairman Lamar Smith (R-Texas) states: “The current regulatory system has become a barrier to economic growth and job creation. Federal regulations cost our economy $1.75 trillion each year. Employers are rightly concerned about the costs these regulations will impose on their businesses. So they stop hiring, stop spending and start saving for a bill from Big Brother.”

If this picture were accurate, one might appropriately support legislation that a just-released Coalition on Sensible Safeguards study found would “grind to a halt the rulemaking process.” But it is not.

The chairman’s statement incorporates two oft-repeated but fundamentally inaccurate claims. The first is the cost of regulation finding from a study by Crain and Crain conducted for the Small Business Administration. Their $1.75 trillion estimate is a gross exaggeration. It has been debunked by the Congressional Research Service, Obama administration officials, and the Center for Progressive Reform.

A study by EPI’s John Irons and Andrew Green is especially telling. It examines Crain and Crain’s estimate of the costs of economic regulation, which accounts for 70 percent of the overall estimate. The economic regression model used to determine these costs contains a series of fundamental flaws, including reliance on an international data set rife with holes (spotty data typically produces spotty findings), as well as a misspecified regression that confuses regulatory stringency with regulatory quality. The Crain and Crain regression also produces the counterintuitive finding that increased education in a country leads to less economic growth, reason alone to be skeptical of the overall estimate.

Irons and Green correct for just one of the problems with the regression – they fill in the spotty data set – and find no statistically significant relationship between Crain and Crain’s measure of regulation and economic outcomes. This implies that the economic costs of regulation cannot be distinguished from zero, an unsurprising result since certain regulations, such as financial regulations that stabilize the economy, promote economic growth.

The second inaccurate claim of Smith’s is that the specter of additional regulation is what’s causing companies to hold back on additional hiring. EPI has released a series of reports on the relationship between regulations and jobs; one of the clearest findings is that it is a huge shortfall in demand, not regulatory uncertainty, which ails the economy.

In this report, EPI President Larry Mishel finds that data suggesting a significant role for regulatory uncertainty is altogether absent. In fact, investment in equipment and software has grown faster than during the previous three recoveries, and private sector employment has grown much faster than during the last recovery. There are no mysterious lags that might be explained by regulatory uncertainty.

In fact, Labor Department data show that in 2011, just 0.2 percent of mass layoffs have been due to regulation, while 29.7 percent have reflected the lack of demand. (This data is summarized by Bruce Bartlett.)

Of further interest, companies are not using a substantial amount of resources they already have at their fingertips; presumably, they would use these resources more fully before they would increase investment or hiring. The capacity utilization rate (the degree to which current factories and equipment are being used) is still well below its average from 1979 to 2007. Similarly, the average number of hours employed individuals are working each week is still below the pre-recession level. Substantial unused capacity is another indicator that lack of demand, not regulatory uncertainty, explains why economic trends have not been stronger.

Turning to what businesses themselves are saying, Mishel found that the percent of small businesses reporting that regulations are the single most important problem they face has not been out of its historical range during the Obama administration. For instance, the proportion reporting this concern is lower than it was during the Clinton years, when employment growth was rapid. What is unusual now is that the most common problem cited by far is “poor sales (an indicator of the lack of demand);” during the Obama administration, the average share of small businesses citing “poor sales” as the most important problem they face is more than double the average cited in the eight other presidential terms examined.

This Congress has seen many examples of unwarranted economic concerns about regulations driving legislation likely to prove damaging to the regulatory process, thereby undermining essential health, safety, and economic safeguards. The thinking behind the Regulatory Accounting Act is a case in point; bad diagnoses tend to lead to the wrong cures.

As Paul van de Water recently pointed out, some of the plans floated by supercommittee members cut non-defense discretionary spending by about the same amount as the sequestration trigger would. This is because the proposals to cut discretionary spending do not include a firewall between defense and non-defense, so it is likely that a large cut to the entire discretionary budget—such as the Democratic offer to cut $400 billion—would all end up falling on the non-defense side. Remember, the trigger was supposed to be so bad and disastrous that it would scare Congress into striking a deal. But apparently it’s just scaring Congress into making pretty much the same cuts to non-defense discretionary and just sparing defense.

Why should we care about non-defense discretionary? There are a lot of reasons to care about this portion of the budget, which includes just about every federal government function outside of Social Security, Medicare/Medicaid, defense, and net interest, despite only representing less than 20 percent of the budget. But one of my main concerns is public investments such as infrastructure, education, and research and development. Economists across the board—even presidential candidate Mitt Romney’s economic advisor!—recognize that these investments must be sustained and even expanded to ensure long-run economic growth and global competitiveness. But according to Office of Management and Budget account-level data, these investments make up 1.7 percent of GDP, or about 40 percent of non-defense discretionary. This means that it would be extremely difficult to hit the budget targets proposed without taking a decent-sized hunk of flesh from these accounts.

Second, non-defense discretionary has been on a downward path as a share of the economy since the late 1970s (about the time that income inequality really started taking off, hmmm…). The discretionary caps enacted into law as part of the debt ceiling deal would force non-defense discretionary to record lows: to just 2.7 percent of GDP, far lower than the levels of the 1990s and 2000s, and a 29 percent reduction relative to the funding in the 2000s. And both the sequestration trigger and the $400 billion cut—were it all to fall on domestic discretionary—would cut these services even further.

Mayor Michael Bloomberg of New York is in the news today for shutting down the Occupy Wall Street protests in Zuccotti Park. This reminds me that he spoke last week at a forum co-hosted by the Center for American Progress and the American Action Forum. Besides a couple of truly novel twists (comparing Social Security to OPEC?!) it’s actually useful bringing up his speech because it perfectly crystallized the dominant economic narrative that far too many policy-making (and media) elites tell themselves these days. The punchline of that narrative, presented with no evidence at all,  is simply that we need to urgently move to cut the budget deficit.

Bloomberg is sure that providing more fiscal support (i.e., using larger near-term deficits to finance spending and investments) to the economy won’t work to reduce unemployment. How is he sure? Because we gave some already and unemployment remains high. This is like a fire chief claiming that pouring water on a fire won’t quench it because once there was a really big fire and his crew poured more water on it than they’ve ever poured before … but it kept burning. So, apparently we’re going to move to pouring gasoline on it. Really, it says so right in the press release – “the best stimulus is fiscal responsibility (where “fiscal responsibility” is nearly always Beltway speak for quick reduction of budget deficits through large spending cuts leavened with some tax increases).”

I know that my harping on this may be getting old, but people haven’t stopped doing it yet, so here we go again: the failure of fiscal support would leave clear footprints in economic data. The textbook case for why debt-financed fiscal support does not lead to net new jobs and economic activity in some cases is that the first-round effect of spending and tax cuts are counter-balanced by rising interest rates that “crowd-out” private investment. There has been no rise in interest rates, hence there is no crowding-out.

Bloomberg is also sure that businesses aren’t spending enough – and that their failure to spend is because of vague uncertainty:

“But as important, and the subject for today, is the broader uncertainty that exists about the country’s long-term fiscal stability… . Nearly every CEO I talk with says the same thing: If the Federal government passed a real deficit reduction plan – and we’ll talk about what ‘real’ means in a minute – business leaders would respond just as they did in the 1990s, when President Clinton and Congress adopted a long-term deficit reduction plan that gave businesses more certainty about the market.”

But businesses are spending. Actually much, much more than they did during the first two-and-a-half years of the early 1990s expansion.

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And there is no actual evidence that uncertainty is constraining them. And if businesses are uncertain about the future, aren’t they at least happy enough with today’s record-high profit margins?

I guess this is the quality of fiscal policy analysis I should expect from somebody who seems to think that Congress forced banks to finance the housing bubble.

Enough for now – suffice to say that this speech could’ve been generated by a Ye Olde Beltway Centrist Cred-Producing software package from the mid-1990s. With this mindless invocation of “smaller deficits will fix everything,” is it really so hard to figure out why countries respond so poorly to financial crises?

As the deadline looms for the supercommittee to report back to Congress, some have raised the specter that “failure” would lead to a collapse in financial markets. For example, Massachusetts Sen. John Kerry has expressed concerns that a failure to reach an agreement would send a dangerous signal to markets, and the Committee for a Responsible Federal Budget has said that a “go big” agreement is needed to “reassure markets about our ability to repay our creditors.”

These concerns are misplaced.

First, even if the supercommittee fails to find an agreement, there would still be a $1.2 trillion 10-year spending reduction put onto the books via a process called sequestration that would limit annual appropriations by Congress. From a pure deficit-reduction perspective, a $1.2 trillion agreement would be no different than a so-called failure. Congress can of course revisit those cuts, but they could also revisit any other kind of spending agreement too.

Second, remember that financial markets are forward looking and respond primarily to unexpected news. Does the market believe that Democrats and Republicans will come together in a Kumbaya moment to pass $3 trillion in tax increases and/or cuts to spending? I wouldn’t bet on it. Goldman Sachs noted in a recent Q&A on the supercommittee that, “a ‘grand bargain’ to resolve this imbalance appears to be a low probability this year. Instead, the politically realistic outcomes range from no agreement to a deal reaching $1.2 trillion in deficit reduction over 10 years.” They also note that just “32% of economists polled in the November Blue Chip financial survey expected a super committee agreement to become law.” Thus a failure would merely confirm market expectations, and there should be little reaction in the markets.

Third, as I noted in an earlier post, real interest rates on federal debt are negative for some maturities, and very low for longer term bonds. There is no indication that markets are worried about U.S. debt and need to be reassured. For example, Moody’s rating agency recently stated that, “failure by the committee to reach agreement would not by itself lead to a rating change.”

Finally, the main worry for businesses is the lack of demand for their goods and services and the main worry for individuals is the lack of jobs. The markets would react if Congress fails to continue a payroll tax holiday or fails to continue unemployment insurance payments. The real, immediate crisis is jobs and economic growth – Congress needs to focus on getting people back to work. A jobs-first focus would, more than anything else, reassure markets that the U.S. economy is poised for growth, and not slipping into premature, job-killing austerity.

The Social Security benefit cut the supercommittee is most likely to make is a reduced COLA, the inflation adjustment that protects the purchasing power of recipients’ benefit checks from rising prices. Alice Rivlin, Alan Simpson, Erskine Bowles, and most pundits argue that the COLA overstates price growth facing the elderly and hence provides them a mounting windfall over time , fattening the retirement checks of the elderly at the expense of everyone who’s still working. They are wrong.

In fact, as economists have pointed out, it is likelier that the current Social Security COLA is insufficient to fully protect Social Security beneficiaries from the effects of inflation, because it doesn’t take into account the large amounts of money the elderly pay out-of-pocket for health care. It’s probably true that the chained CPI-U better accounts for price changes affecting the general population, but it simply measures the wrong market basket for the elderly. The chained CPI-U not only understates the effect of health care cost inflation on the elderly, but it may also overstate their ability to change their buying habits in response to price increases since a greater share of their incomes is spent on necessities.

New evidence that the elderly have very different consumption patterns than the general population comes from the federal Interagency Technical Working Group that just reported on a new Supplemental Poverty Measure (SPM), a new methodology for determining the extent of poverty in the United States. The study group confirmed that medical out-of-pocket expenses for the elderly are a disproportionate part of their consumption. When the study group measured poverty based on the actual spending of Americans over the age of 65, they discovered that the poverty rate jumped from 9 percent to 15.9 percent. More than 6 million Americans aged 65 or over are living in poverty, according to the SPM. The view that the elderly are doing better than everyone else and living well at the expense of the working population is contradicted by this new evidence.

No supercommittee member should be allowed to pretend that using the chained CPI to determine Social Security COLAs is a “technical” change to increase their accuracy. It is a benefit cut, pure and simple, and it will do the greatest harm to the oldest of the elderly. Under the proposed COLA, an average-wage worker retiring this year would, in 2031, receive $1,754 less in annual benefits.

Question: What’s wrong with this story?

“In 1940, when Social Security first paid monthly retirement benefits and the number of private pension plans was just beginning to grow, individuals reaching age 65 lived, on average, for another 13 years. Furthermore, many workers entered the labor force at age 18, immediately after graduating from high school. These individuals could expect to work for 47 years before attaining “normal” retirement age…

Fast forward to 2006: the demographics of pension planning have changed significantly. Approximately two-thirds of eligible non-disabled workers claim Social Security retirement benefits at age 62 rather than 65, and they enter the labor force at a later age, often at age 21 or even older, rather than age 18. This leaves about 40 years of work before an expected retirement at age 62, at which point remaining life expectancy is approximately 20 years.”

Answer: It ignores women, except when including them makes the situation seem worse.

The hypothetical “individuals” in the first paragraph appear to be men, since few women born in 1875 spent 47 years in the paid workforce before retiring at 65 (it’s also doubtful whether their male counterparts worked that many years, but that’s another story). Likewise, the life expectancy of a 65-year-old man in 1940 was thirteen years. In the second paragraph, however, the life expectancy cited is for both sexes, which has the effect of exaggerating the increase in life expectancy in retirement since older women live roughly two years longer than men.

The quote is from an American Academy of Actuaries brief published in 2006. It’s still relevant, however, because the thrust of the argument—that we need to raise Social Security’s full retirement age because people are living longer but retiring at younger ages—has become the conventional wisdom in Washington.

You could argue that the statistics cited are appropriate since the workforce in 1940 was largely male, whereas in 2006 it was more evenly split between men and women. But it’s no accident that the influx of women into the paid workforce goes unmentioned, since acknowledging it would require the authors to paint a more complicated, and rosier, picture.

The rise of two-earner couples has been a boon for Social Security because it increased the number of workers contributing to the system while decreasing spousal benefits, which aren’t paid for by higher taxes on married workers. Meanwhile, it lowered the average age of retirement, since women have historically retired at younger ages than men (often at the same time as older husbands).

The resulting decline in the average retirement age was especially pronounced in the 1970s and 1980s, when the trend was toward earlier retirement for both sexes. But the last two decades have seen a reversal of this trend, and the labor force participation rate of older workers is now as high as it was half a century ago. In any case, whether people choose to retire early is irrelevant to discussions of Social Security’s finances because monthly benefits are reduced for early retirement in order to equalize the value of lifetime benefits.

A focus on the average retirement age misses the bigger story of how much more Americans are working and contributing to Social Security over the course of their lifetimes, thanks to women. It also ignores the fact that Social Security’s full retirement age is already increasing, so the ratio of working years to covered retirement years is roughly the same as it was in the early 1980s when the system was in balance. Last but not least, it ignores the fact that people are encouraged to continue working after claiming benefits. If you exclude people still working for pay as well as those who weren’t in the workforce to being with, such as full-time caregivers, the average retirement age is 65.5, not 62 as is often claimed.

Today’s interesting story on the front page of The Washington Post presents a nuanced view of the reaction of companies  to new environmental regulations, quoting, for instance, several utility industry representatives on the ways jobs are created during the compliance process. The main channel of job creation occurs through the construction and installation of pollution-abatement equipment, or less-polluting facilities.

The piece is a good overview of the impact of regulatory change on employment in general, but there is an important angle that it did not touch on: the positive job-impacts of regulatory changes are likely to be much more potent in today’s economic context of high unemployment and low rate of capacity utilization. In particular, the construction industry, where many jobs would be created, is in particularly dire shape, with its overall level still nearly a half million short of its level at the start of the recession.

As Josh has blogged previously, when there are large amounts of unused capital and unemployed workers, as there are today, government regulations can effectively move this capital into action in the form of investments to comply with important environmental rules. Partially because of this, Josh’s analysis of the air toxics rule found that it would be a net job producer; in essence, in 2014 the jobs generated by investments in less-polluting technologies would outweigh any jobs lost due to higher prices or plant closings by about 90,000 workers.