There was a lot of good news last night and some great headlines this morning. But here’s one of my favorites, via Fox News Latino, and not just because it references one of (immigrant former governor) Arnold Schwarzenegger’s best films:

Conservative voters in Arizona may have had enough of their immigrant-bashing elected officials, it seems. Arizonans confirmed that Arizona Senate President Russell Pearce had gone too far by sponsoring and pushing hard for the passage and implementation of SB 1070, an insanely draconian (and likely unconstitutional) anti-immigrant, anti-Latino law that facilitates racial profiling.

Arizona is also home to controversial, attention-loving Sheriff Joe Arpaio (pictured above on the right), an ardent supporter of Russell Pearce and vocal proponent of SB 1070. Arpaio has personified the extremist elements in the state that support SB 1070, and his questionable enforcement tactics have earned him criticism from Amnesty International for the harsh treatment of prisoners. His actions, which recently included forcing an immigrant detainee to give birth while handcuffed and shackled, are the subject of two federal investigations, one by the Department of Justice over civil rights violations and another by a federal grand jury for abuse of power.

The recall vote, the first ever recall of an Arizona state legislator, is being heralded as a rejection of the policies and tactics embodied in SB 1070.

Pearce lost the election last night in his conservative suburban Phoenix district to a political newcomer, fellow Republican Jerry Lewis. Pearce lost by a substantial margin of seven percent, despite having outspent Lewis by a 3-to-1 ratio, thanks to a flood of campaign funds donated by corporate lobbyists, 90 percent of which came from outside the district.

Legislators in other states – most notably Alabama, Georgia, South Carolina, and Indiana – who have targeted immigrant workers and their families for political gain or because of intense lobbying from corporate interests, including and especially from the private prison industry – are now officially on notice. If you strive to terrorize law-abiding immigrants and Latinos who simply wish to work to provide food and shelter for their families, responsible voters will not allow you to remain in power, no matter how much money you get from the special interests you champion.

This is the second part of a two-part blog prompted by an alarmist Washington Post article on Social Security, as well as the Post ombudsman’s muddleheaded response. Last Wednesday, we looked at links between the Social Security surplus (and future deficit) and the overall federal deficit and debt. Today, we’ll look at the impact of the Great Recession on Social Security and whether the fact that Social Security is now running a primary deficit will add to the nation’s budget problems, as Post reporter Lori Montgomery claims.

How have the Great Recession and weak recovery affected Social Security to date?

Compared to intermediate projections in the last prerecession (2007) trustees report, the number of workers covered by Social Security last year was down seven percent and the number of beneficiaries was up one percent in 2010, according to the latest report. The cumulative impact was that the Social Security trust fund held $2.6 trillion at the end of 2010 rather than the $2.9 trillion projected in the 2007 report.

How will the recession and weak recovery affect the future of the trust fund?

The Social Security actuaries project slower economic growth over the next decade, though long-run assumptions remain unchanged. As a result of lower projected employment growth, wage growth and other factors, the trust fund is expected to peak at around $3.7 trillion rather than the $6.0 trillion projected in 2007 and to be exhausted five years sooner—in 2036 rather than 2041.

How will the recession affect Social Security’s long-run outlook?

Because benefits are mostly paid out of current tax revenues as opposed to savings, Social Security’s long-run outlook isn’t as affected as one might think if focusing only on the trust fund.  The 2011 report projected a 75-year shortfall equal to 2.22 percent of taxable payroll, an increase from 1.95 percent in the 2007 report (some of this is due to the changing 75-year projection period and other factors besides the weak economy). This means that a relatively modest increase in the Social Security tax on employers and employees from 6.2 percent to around 7.3 percent of earnings would put the program in long-term balance, though more progressive revenue options, like lifting the cap on taxable earnings, would be preferable.

Why do some people say Social Security is already running a deficit?

Social Security had $781 billion in revenues in 2010. Of this, $637 billion was revenue from payroll taxes and $118 billion was interest on trust fund assets. Meanwhile, Social Security had $713 billion in expenditures, the bulk of which ($702 billion) was paid out in Social Security benefits. Since current tax revenues no longer cover current expenditures, Social Security is running what’s known as a primary deficit (sometimes referred to as a “cash-flow” deficit) even though it is still building up savings in the trust fund.

What’s the significance of this cash-flow deficit, if any?

By definition, Social Security will run a deficit when it taps into its savings to help pay for the Baby Boomer retirement. Running a primary deficit is a normal stage in the process of moving from saving to dissaving. The fact that this is happening sooner than expected is actually beneficial in the short run—since Social Security serves as an automatic stabilizer for the economy. Older workers tapping retirement benefits when they lose their jobs helps them and the sputtering economy—and does so at no cost to Social Security since benefits are adjusted for early retirement. Lower-than-anticipated payroll tax revenues do, however, add modestly to the system’s long-run challenges.

Does this “add to the nation’s budget problems?”

As explained last week, Social Security cannot contribute to the federal debt over time because it is prohibited from borrowing. This is analogous to a family with indebted parents and a thrifty child who is saving money from a newspaper route. When the child dips into her piggy bank to buy a bike, she’s contributing to her family’s “deficit” simply by tapping into her savings. She’s also adding to her family’s net indebtedness because there are now fewer savings in her piggy bank to offset her parents’ credit card debt. However, it would be absurd to hold the child responsible for her parents’ mounting debt.

On Monday, the Census Bureau released a report on the new Research Supplemental Poverty Measure (SPM), a metric designed to address longstanding criticisms of the official federal poverty threshold. The official “poverty line” is a set pre-tax income level, established in 1969 at essentially three times what was considered necessary to afford a “minimal, but adequate” amount of food. The measure has been adjusted for family size and inflation, but has otherwise remained unchanged for more than 50 years.

What’s different about the SPM?

The SPM attempts a more holistic appraisal of family expenses. It takes the average between the 30^th and 36^th percentiles of spending by a family of three on food, clothing, shelter, and utilities, and adjusts this amount to reflect other necessary expenses, such as child care, federal income taxes, FICA payroll taxes, out-of-pocket medical expenses, and work-related expenses such as commuting costs, uniforms, and tools. At the same time, the SPM also accounts for resources available to low-income families through government programs, like the EITC, SNAP (food stamps), housing subsidies, school lunch programs, heating assistance, and WIC (food assistance for women, infants, and children). Finally, unlike the existing official poverty rate, the SPM does adjust for regional differences in prices and costs.

How do poverty levels under the SPM compare to those under the official poverty threshold?

According to the SPM, more than 49 million Americans—or 16 percent of the population—are living in poverty as of 2010, compared to 46.6 million—or 15.2 percent—under the official poverty line.

Moreover, the figure below highlights changes in the distribution of people by the ratio of their income to the poverty line.  Note the enormous growth in the number of people with incomes 1.0 to 1.99 times the poverty threshold. This means that the number of Americans with incomes at or below 200 percent of the poverty line—a level often thought of as an adequate, but modest standard of living – rises from 34 percent under the official measure to 47.5 percent under the SPM. That’s nearly half of all Americans.

Why are so many more people closer to poverty under this new measure? 

One clear reason is that the official poverty line’s method of pegging the poverty threshold to three times a minimum food bundle assumes that the growth in all expenses other than food will remain proportionate to the growth in food costs. But we know this is not true: case in point, healthcare. In fact, the SPM report shows that when you factor in individuals’ out-of-pocket medical expenses, it increases the poverty rate by 3.3 percentage points – in other words, the poverty rate would be 12.7 percent instead of 16 percent if individuals faced no medical costs. This contrast is even starker for seniors. Without accounting for out-of-pocket medical expenses, the poverty rate for seniors would be 8.6 percent; once you factor in medical costs, the poverty rate among seniors jumps to 15.9 percent! (Let this be a big warning to policymakers advocating benefit cuts to seniors, under the illusion that the current indexing of benefits has been too generous.)

There’s another interesting point to be made when you look at the effect that the additional necessary expenses (childcare, payroll taxes, etc.) and government-provided resources (EITC, SNAP, etc.) has upon the estimated poverty rate. The sum of the effects of the additional government-provided resources is to lower the SPM rate by 5.2 percentage points. However, the sum of the effects of all the additional expenses is to increase the SPM rate by 6.7 percentage points. So on net, the additional expenses that families face are overshadowing the benefits that government programs provide at a level sufficient to raise the poverty rate by 1.5 percentage points. At a time when so much of the political discourse is on reducing and eliminating federal programs, this finding at least suggests that the question should not be which programs to cut, but whether the programs we currently have to combat poverty are actually doing enough.

The Census Bureau acknowledges that the new measure is a “work in progress” and there are certainly some glaring concerns about the SPM that other researchers have dutifully pointed out. On a more fundamental level, there will always be questions around measures that define poverty in quasi-absolute terms. Simply because a family is spending on healthcare (childcare, food, shelter) at a level commensurate with the 33^rd percentile of spending does not mean that they are receiving adequate healthcare. For these reasons, the SPM may be one step towards better ways of identifying poverty, but it cannot and should not be the end of the conversation.

Ohio’s landslide rejection of SB 5, a law that attacked the right of employees to engage in collective bargaining, a core human right, shows that conservatives there and elsewhere have gone too far. Americans know that unions, which have been crushed by big business, conservative courts, and right-wing politicians, are not the cause of the nation’s economic woes. Rather, unions are a hope for the 99 percent to hang on to what they have and preserve the middle class that they helped build.

House Republicans, who are attacking collective bargaining and the NLRB, the agency that protects the right to join unions and bargain collectively, should take heed. They are going down the same dead-end road as Gov. John Kasich in Ohio, and Americans won’t follow them.

I’ve generally been a fan of Planet Money – and still refer people to ‘another frightening show about the economy’ for a good summary of what led people to get so panicky in Sept. 2008. So, I’m afraid I find Adam Davidson’s first New York Times Magazine column – titled “It’s the economy” and labeled an exercise in “[trying] to demystify complicated economic issues…” –  to be pretty disappointing.

He covers a lot of ground, so my list of disagreements is going to be scattershot, but here’s a quick taxonomy. First, I don’t buy his characterizations about what is generally agreed upon and what is seriously contested among economists. Second, he really undersells how well studied the concept of providing Keynesian-style fiscal support to ailing economies is. Finally, he doesn’t help readers in their attempt to make an evidence-based decision on what is easily the most important economics question today: Should Congress and the Administration be spending more to help lower today’s 9 percent unemployment rate?

Let’s start with the general – Davidson portrays economists as hopelessly divided and unsure about whether or not debt-financed spending and tax cuts (i.e., something like another Recovery Act, which I’ll just call “fiscal support” from now on) could lower today’s unemployment rate, but relatively united when it comes to how to reform taxes and education and health care systems.

This is the reverse of the truth – there is wide agreement that debt-financed fiscal support in a depressed economy will lower unemployment. Now, it’s true that there are holdouts from this position. And others who think the benefits of lower unemployment are swamped by the downsides of higher public debt (they’re wrong, by the way). But, the agreement* is much more widespread – ask literally any economic forecaster, in the public or private sector, that a casual reader of the Financial Times has heard of if, say, the Recovery Act boosted economic growth. They will all tell you “yes.”

You won’t find anywhere near such a consensus on long-run tax or education or health care policy. In fact, public finance economists can’t get unanimous agreement on if, in the long run, income accruing to holders of wealth should be taxed at all (it should, by the way). In short, anybody waiting for the current unpleasantness to pass and for economists to unite in harmony in future policy debates shouldn’t hold their breath.

Davidson also claims that there is wide agreement that “many Americans don’t know how to do anything that the world is willing to pay them a living wage for.” I’m not quite sure what this means. I guess it’s true in the strictly tautological sense that there are a lot of involuntarily unemployed workers out there, but if it is meant to be an indictment of American workers’ skills (and it’s hard for me not to read it that way) – then there’s no serious basis for this indictment.

Most distressingly, Davidson doesn’t rise above the “opinions on the shape of the world differ” review of the argument about the virtues of debt-financed fiscal support as the answer to today’s unemployment crisis. He writes as if this argument has lain completely unstudied since the Great Depression and that advocates for fiscal support in the last three years have taken a huge leap of faith in pushing it as the answer to today’s troubles. This is, again, so at odds with what has actually gone on in the profession that it’s hard to figure out his basis for claiming it. If nothing else, the experience of Japan’s Lost Decade alone has inspired thousands of pages on recessions (and jobless recoveries) driven by deficient demand. And no, a Google or Lexis search on “job creation” won’t actually capture all academic work relevant to this.

He also writes that the point of large-scale fiscal support was to “goad consumers into spending again.” Not really. A good chunk of the Recovery Act was indeed aimed at households, but it didn’t rely on some esoteric trick to bamboozle people into spending – instead it gave them money (or its near equivalent). And much of the most-effective parts of the Recovery Act actually recognized that consumers were unlikely to begin spending again and had the government spend the money directly. The recession was largely caused by consumer retrenchment, but this doesn’t mean that recovery has to come through consumer spending – instead we can provide the spending power through other sectors.

Lastly, Davidson notes that there is a rump of economists (he calls them, reasonably enough, the Chicago School) that argue that debt-financed fiscal support cannot help economies recover from recessions. But, it’s important to note that there is pretty simple evidence that can be brought to bear on this Keynesian versus Chicago debate. Nobody denies, for example, that the government could borrow money and just hire lots of people – hence creating jobs. What the Chicago school argues is that this borrowing will raise interest rates (new demand for loans will increase their “price,” or interest rates) and this increase in interest rates will dampen private-sector demand. But interest rates have not risen at all since the Recovery Act was passed and private investment has risen, a lot.

Those in the demystifying business really should point lots of this stuff out.

*Note: The Kaufmann survey describes the results wrong – any multiplier greater than zero means that debt-financed fiscal support has boosted the economy.

The Senate appears poised to pass two components of President Obama’s American Jobs Act, having found the first area of bipartisan agreement. These two components, however, fall woefully short of what is needed to address the jobs crisis.

The first provision would provide tax credits for hiring veterans, with bigger credits for hiring veterans who have been out of work for more than six months and those with service-related disabilities. It would also expand education and training opportunities for up to 100,000 older veterans. Helping veterans find employment or vocational training is a laudable goal. The problem is that this hiring credit is a rounding error in terms of national economic activity and will not visibly budge the dial on the national unemployment rate.

As Larry Mishel recently pointed out, scale is critical to evaluating any jobs plan. The president proposed a $447 billion jobs bill that would boost employment by 1.9 million jobs and reduce the unemployment rate a percentage point, according to Mark Zandi. The $1.6 billion cost of the Senate’s bill for veterans, on the other hand, represents only one-hundredth of one percent of GDP.

Worse, a second provision would repeal a requirement that, starting in 2013, will withhold 3 percent of payments to government contractors, in the form of a credit against contractors’ tax liability they already owe. Essentially, the cost of helping veterans is simultaneously helping government contractors avoid taxes. Of course, the increased tax avoidance would cost money – but the Senate provided a “pay-for” in the form of decreasing eligibility for Medicaid and subsidies for those seeking to buy health insurance under the Affordable Care Act (i.e., the health reform bill passed at the beginning of 2010).

So, to recap, the big “jobs-plan” coming out of the Senate today would help veterans (good), but would not move the dial on overall joblessness (bad), would facilitate tax avoidance by government contractors (bad), and would pay for this loss in tax revenue by eroding some of the benefits of health reform (bad). Will this pass? Probably—so much for the alleged benefits of bipartisanship. The likely success of this legislation owes first and foremost to the fact that it would not be paid for with a millionaires’ surtax. Over the last month, Senate Republicans have filibustered all of the following measures, which would have been paid for with varying surtaxes on incomes of more than $1 million:

1. $447 billion for the entire American Jobs Act (10/11/2011)
2. $35 billion to put teachers and first responders back to work (10/20/2011)
3. $56 billion to build roads, repair bridges, and create an infrastructure bank (11/3/2011)

Helping some of the 240,000 unemployed veterans of the wars in Iraq and Afghanistan is merited, but so is helping the broader pool of 25 million un- and underemployed Americans. As we have pointed out over and over again, boosting GDP growth in a $15.2 trillion economy and seriously tackling persistent underemployment requires hundreds of billions of dollars in additional fiscal support. Republicans in the 112^th Congress, however, have filibustered (or blocked through other procedural means) all job creation proposals that would provide any meaningful help ameliorating the jobs crisis.

The Washington Post‘s Ezra Klein with a useful observation…

Just a reminder: The market will literally pay us to borrow money from them for 5, 7 or 10 years. Pretty good deal for a country that has, say, trillions of dollars in infrastructure repairs it needs to make, or millions of workers who are unnecessarily unemployed. More here.

Here are the real interest rates on Treasury’s TIPS (click to enlarge):

On Friday, the Bureau of Labor Statistics released its monthly report with the most recent data on jobs and employment in the United States, a bleak reminder that things aren’t getting much better for the unemployed in this country. Sadly, as the International Labor Organization’s annual World of Work report reveals, the world economy is no better, and the risk of social unrest has increased dramatically in rich countries as a result (see figure below). The ILO’s calculations are based on “levels of discontent over the lack of jobs and anger over perceptions that the burden of the crisis is not being shared fairly.”

Click to enlarge

Just in the past year, we’ve seen violent clashes erupt between protestors and police in London, New York, Rome, and Oakland as a direct result of citizens protesting budget austerity, joblessness and a sputtering economic recovery. And in encampments literally all over the world people are peacefully protesting income inequality and widespread joblessness as part of the Occupy Wall Street movement. Thanks to a 17 percent youth unemployment rate in the U.S., young people in New York, Tulsa, Sacramento, Philadelphia, Minneapolis and elsewhere have plenty of time on their hands to protest and make their voices heard. Even recent college graduates have an unemployment rate that’s almost double what it was before the recession.

But just because they’re peaceful does not mean the OWS protestors are not seething with anger about the way that high level executives in the financial services industry – who are some of the wealthiest people in the world (better known as “part of the 1 percent”), have escaped prosecution or serving any jail time after bringing our economy to the brink of collapse, while the industry as a whole somehow managed to escape serious reform by Congress.

One of the other principal gripes of the peaceful OWS protestors is that Congress has failed to do almost anything to invest in the economy or create jobs since the stimulus package was passed in 2009, despite persistent joblessness and underemployment. Foreign governments in other developed countries have failed at this as well – and the discontent is palpable. Just look at the scale of protests in Spain, spurred in part by the country’s eye-popping 46 percent youth unemployment rate.

From most reports, it appears that the OWS protestors are committed to remaining peaceful – for now. Let’s hope it stays that way, despite this new evidence that things may deteriorate if economic conditions fail to improve.

My colleagues at EPI recently outlined how the grievances of the Occupy Wall Streeters are fact-based and supported by ample evidence. The ILO’s 2011 World of Work report offers a new estimate that should motivate 99 percent of the global population to join together into one massive movement that challenges the financial and political elite to enact policies that will put people back to work around the world. The table below is the ILO’s estimate that by 2013, there will be a global shortage of 40 million jobs – that’s a lot of desperate, hungry people with way too much time on their hands.

In a blog post yesterday, Paul Krugman again noted that the growth in income inequality is not all about education.

He pointed to two different charts to illustrate: one showing the growth of the top 1 percent relative to other income groups and a second with wage growth by education levels. Since the two charts had different scales, it was hard to see just how out of whack the education-explains-inequality story really is.

Below is a chart that combines the two series in one chart, showing that the top 1 percent has outpaced, by a very wide margin, not just those with less formal education, but college grads as well. And this gap between the growth of the top 1 percent and the rest is much larger than the growth gap between education levels.

This is not to say that education is not important. The chart also shows that those with a college (or post-secondary) degree have outpaced others. But it’s also clear that this trend only explains a small part of the broader inequality story.

(Note: The top 1 percent line shows the growth in average after-tax incomes for this group, via the CBO, data from Figure 2. The education lines show the growth in wages for all workers, via EPI’s State of Working America data on wage and compensation trends by education. Both are inflation adjusted.)

As Americans wrap their heads around the meaning of the growing “Occupy” movements in cities throughout the nation, trying to determine whether or not the 99 percent vs 1 percent breakdown of Americans constitutes “class warfare,” there are a great many irrefutable facts that need to inform such discussions. Many have been clearly articulated recently, (including this great collection by my EPI colleagues). In this blog post, I begin a renewed examination of how the decline of manufacturing employment has contributed to the erosion of the American middle class, and in the process, left many state economies in shambles.

Employment in the manufacturing sector has long provided a foundation for the American middle class. In 1999, former EPI economists noted key features of manufacturing employment:

Manufacturing provides middle-class jobs and a channel of upward mobility for non-college-educated workers (especially men). Compensation is higher and fringe benefits (such as health insurance and pension coverage) are more common than in other industries that, like manufacturing, employ non-college graduates. Blue-collar workers in manufacturing are also more likely to be union members, and thus they have more bargaining power than do comparable workers in services.

In 1999, there were troubling signs that all was not well in the American manufacturing sector, with the “Asian crisis” identified as a growing threat; a threat which my colleague Rob Scott has repeatedly shown to have continued to erode American employment (see, for example, Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010). The alarming decline of the American manufacturing sector has of course only gotten worse over the intervening decade, leaving in its wake many state economies that have yet to recover. Since Jan. 2000, the American manufacturing sector has lost 5.5 million jobs, nearly a third (32.1 percent) of the Jan. 2000 total. Six states – Michigan, North Carolina, Rhode Island, Mississippi, New Jersey, and New York – have lost over 40 percent of their manufacturing workforce, while another five states have lost more than 37 percent of their manufacturing employment (collectively, the dark red states in the figure below). Indeed, only Alaska has seen growth in its manufacturing sector since 2000, though numbering less than 2,000 workers.

Click to enlarge

In future posts, I’ll examine the impact the erosion of manufacturing employment has had on wage trends in those states that have been hardest hit by the decimation of manufacturing employment. Lest readers despair, here are some concrete suggestions for what can be done to breathe new life into American manufacturing:

• The Alliance for American Manufacturing has a comprehensive plan for job creation based on the following five strategies:  expanding American production, hiring, and capital expenditures; investing in America’s infrastructure; enhancing our workforce; making trade work for America; and rebuilding America’s innovation base.
• AAM’s Executive Director Scott Paul appeared Tuesday night on The Ed Show, noting how different the American economy would be if 5.5 million manufacturing jobs had not been lost over the past decade.