EPI has strung together a series of posts and papers on why regulatory changes enacted and proposed in the past couple of years are clearly not a contributor to the economy’s sluggish recovery from the Great Recession. We’ve been especially critical of the vague claims that “uncertainty” over regulatory change has dampened job-growth. Basically, we’ve done the analysis that anti-regulatory forces have not done – specified just what the evidence would look like if regulatory change or uncertainty was dampening growth and then examining the actual facts-on-the-ground to see if it was consistent with the story. Punchline: it wasn’t.

But we’re just EPI and the debate has seemed a bit lonely; until now.

The Treasury Department, in an important blog post, has reviewed the evidence that we cited and more to assess the case for regulatory changes or uncertainty stifling growth – and they find it as content-free as we did.

Treasury cites low hours per employee (yet to regain their pre-recession peak), low rates of capacity utilization, low bond-rates (even for industries facing regulatory changes), and low rates of financial volatility – along with high profit margins and high rates of investment in equipment and software – as all bolstering the case against regulatory uncertainty as a prime suspect for dampening economic recovery.

As we explained previously, low rates of capacity utilization and average hours per employee argue against regulatory uncertainty as a driver of sluggish growth because even if firms were reluctant, because of uncertainty, to make new permanent commitments to staff or investments, there’s no reason why future uncertainty would cause them to under-utilize their incumbent labor force and capacity. Slack demand, of course, would cause them to under-utilize these. Low bond rates and financial volatility argues that financial markets sure don’t see future uncertainty that needs to be priced into interest rates charged to American business. High rates of profit argue that nothing – not regulatory burden or anything else – has hampered business profitability – and high rates of investment in computers and software argues that businesses lack of spending is not the prime cause for sluggish growth in general. It’s amazing that just three years removed from the absolute meltdown of the most conspicuous experiment in market self-regulation over the past decades, the GOP Congress wants to argue that it’s excessive regulation that is stifling the economy, without providing an iota of evidence.

The Treasury’s post is very encouraging in that it signals an administration that has decisively rejected this view and seems determined to follow the evidence in continuing to push for smart, well-studied regulatory changes without worrying that they’re somehow strangling the recovery. In recent weeks, President Obama himself has undertaken some increasingly powerful pushback on that portion of the GOP jobs-agenda that consists simply of “deregulate.”   These developments, along with the administration’s proposal and advocacy for the American Jobs Act show a genuinely fact-based commitment to doing what would really work (and ignoring what wouldn’t) to reduce unemployment.

This is the first entry in a series of commentaries on the economic philosophies of the major candidates for the 2012 presidential election. Only candidates who have consistently polled at or near 10 percent are included, which at the start of this project includes Republicans Rep. Michele Bachmann (Minn.),  Rep. Ron Paul (Texas), Newt Gingrich, Gov. Rick Perry (Texas), Herman Cain, and  Mitt Romney. The series will conclude with President Barack Obama.

A Look at Michele Bachmann’s economic worldview

“In my perfect world, we’d take the 35 percent corporate tax rate down to nine so that we’re the most competitive in the industrialized world. Zero out capital gains. Zero out the alternative minimum tax. Zero out the death tax.” — Bachmann as quoted in the Wall Street Journal

The Minnesota representative’s economic program is vague on specifics but generally conforms to what other Republican candidates have advocated. Bachmann has been most forceful in her desire to repeal Obamacare the Patient Protection and Affordable Care Act (PPACA). Another key plank in her platform is cutting government spending to get deficits under control. Yet, repealing PPACA would actually add to deficit according to the Congressional Budget Office. Conveniently, Mrs. Bachmann dismisses the CBO report and has dismissed other non-partisan reports when careful research counters her assertions. That’s her right, I suppose. It would be nice, though, if she would substantiate her rhetoric. Just saying.

Reagan reference

“For my tax plan, I take a page out of one of my great economists that I admire, Ronald Reagan. And under my tax plan I want to adopt the Reagan tax plan. It brought the economic miracle of the 1980s. Why not go with what works? You can’t argue with success. I want to reinstitute the Reagan tax model from the 1980s.” — Bachmann on Fox News

From Flickr Creative Commons by Gage Skidmore

I will assume Bachmann was attempting humor by calling Reagan an economist. It is funny, though, that she doesn’t view the economic performance of the Clinton years as worthy of replicating, despite the fact those years brought higher growth and balanced budgets.

Take a canard, any canard

A recent Bachmann fave is to talk about excessive regulation driving up employer costs and limiting jobs. This notion is, in fact largely wrong and dismisses the benefits of regulation (see this EPI report). Several weeks ago, Bachmann railed against regulation at an Iowa meat packing plant and said the food industry is over-regulated. Interestingly, a well-regarded study that surveyed food industry managers found that only a small minority thought the industry was too regulated, about the same number thought it wasn’t regulated enough, and the vast majority felt the industry was regulated just right.

Declaration of independence

Bachmann and Ron Paul, though signatories to a pledge to condition a debt ceiling increase on so-called “Cut, Cap and Balance” legislation, opposed their party’s efforts to do so. Alas, her ultimate disagreement wasn’t that the cut, cap and balance approach would wreak economic devastation (see this EPI Commentary), but that it wasn’t extreme enough because it did not repeal and defund the PPACA.

Guiding principles

“I will demand a return to our Founders’ vision of smaller, smarter government within the enumerated powers laid out in the Constitution.” — Bachmann campaign website

That statement is part of Bachmann’s platform on budgets and deficits and seems to be the guiding principle for her presidential platform. This assessment of the Founding Fathers has long been part of the Republican catechism, yet it is simply not true.

First, the Founders were not a monolithic bloc. Even someone not well versed in the specifics of American history understands the general arc of why the republic was formed:  Our constitution, which she asserts is her guiding document, resulted from the failure of the Articles of Confederation, our first governing structure, to deliver necessary results. The Articles made the federal government subordinate to state governments, a circumstance Founder Alexander Hamilton described as “inconsistent with every idea of vigor and consistency.” Hamilton and other founding figures like James Madison, George Washington and Benjamin Franklin were proponents of a federal government empowered to do what was necessary to advance the United States so long as the people consented.

A principal reason, remember, for abandoning the Articles was government’s inability to pay its debts. I say with great confidence that the Federalist founders would have strongly disagreed with Bachmann’s position during the debt ceiling debate.

Don’t get me wrong—the federalists were not always right, nor did they unanimously agree. That’s actually the point. Asserting that there was a singular founding vision for this country demonstrates, at best, poor understanding of our history.

Next in the series: Ron Paul.

Every month, the Bureau of Labor Statistics releases updated data on the employment and unemployment situation facing each state. We, in turn, provide a quick analysis of these new data, a process which has for the most part consisted of finding new ways to highlight how truly dismal this recovery has been for virtually every state. And while the data on employment and unemployment trends present a mixed bag of late — with far too many states making negative progress towards economic recovery, one measure that gets far too little media attention is the state level “jobs deficit” — the number of jobs needed to get back to pre-recession unemployment rates (including the jobs required to return to pre-recession level AND the jobs needed to keep up with population growth since the beginning of the recession).

For states with the greatest population growth, employing a growing population and workforce during a recession can be challenging. The data show that of the 10 states with the greatest population growth since Dec. 2009 (the beginning of the recession), six of those states — Colorado, Arizona, North Carolina, Georgia, South Carolina, and Idaho — fall in the top 10 in terms of the current jobs deficit as a percent of Dec. 2009 employment. As seen in Figure 1, there are distinct regional patterns, with states in the West and Southeast facing the largest jobs deficits as a percentage of pre-recession employment.

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Figure 1

Notably, these states coincide very closely with the states experiencing the greatest economic distress as a result of housing foreclosures, further driving home the fact that each indicator of state economic and fiscal distress is intertwined with others (see, for example, our previous post highlighting a recent IRLE study showing that state budget distress is highly correlated with distress in the housing market, and is not caused by public sector unions).

State governors have been quick to pat themselves on the back when they have positive employment growth to report. Indeed, the governor of Texas has made his track record on job creation a centerpiece of his campaign for the Republican presidential nomination. Yet these jobs deficit numbers highlight the fact that even Texas has a long way to go to erase its jobs deficit. If one looks at the number of jobs required to erase state jobs deficits, Texas has the third largest jobs deficit to address — 654,700 jobs — behind California (1,781,100 jobs deficit) and Florida (973,300 jobs deficit). Figure 2 shows the number of jobs each state must create in order to erase the jobs deficit that continues to impede economic recovery throughout the nation. Only North Dakota has successfully erased its jobs deficit, showing growth of 19,500 jobs beyond the employment level needed to get back to pre-recession unemployment rates.

America works best when Americans work. Since it will take some time to make inroads on the 11.6 million national jobs deficit, state and national leaders should continue extended unemployment insurance benefits, and boost wages for those who are working by increasing the minimum wage. Until every state has successfully returned to pre-recession levels, state and national leaders need to focus like a laser on creating quality jobs that contribute to shared prosperity and a moral economy.

Figure 2

House Majority Leader Eric Cantor (R-Va.) just declined to give a much anticipated speech on inequality at Wharton (apparently giving a speech to the public was a deal breaker). The transcript, however, can be found here.

His opposition to the American Jobs Act was premised in an objection to progressive taxation (masquerading as concern for soup kitchens and the poor). Blocking funds to keep teachers in classrooms—exacerbating the widening teacher gap—will, of course, impede upward mobility. Now, he manages to turn concern about inequality into an argument against progressive taxation:

“Instead of talking about a fair share or spending time trying to push those at the top down, elected leaders in Washington should be trying to ensure that everyone has a fair shot and the opportunity to earn success up the ladder. The goal shouldn’t be for everyone to meet in the middle of the ladder. We should want all people to be moving up and no one to be pulled down. How do we do that? It cannot simply be about wealth redistribution. You don’t just take from the guy at the top to give to the guy at the bottom and expect our problems to be solved.

Instead, we must ensure fairness at every level. We must ensure that those who abuse the rules are punished. We must ensure that the solution to wealth disparity is wealth mobility. We must give everyone the chance to move up. Stability plus mobility equals agility. In an agile economy and an agile society, people are climbing and succeeding.”

So how does the House Republican 2012 budget Cantor pushed through the lower chamber go about giving everyone the chance to move up?

• Slashing Pell Grants
• Slashing food stamps (the old block-grant-and-defund trick)
• Slashing health care for children (Wisconsin Rep. Paul Ryan’s budget would halve federal spending on Medicaid over the next 20 years)
• Repealing the health care expansion to 34 million non-elderly adults
• Immediately cutting discretionary spending, which would cause 900,00 job losses in the first year alone
• Slashing the top corporate tax rates on individuals and businesses to 25 percent, then “broadening the base” to recoup this $2.5 trillion revenue loss through unspecified reforms. Who picks up the tab? Probably low and middle-income households

Two-thirds of the spending cuts in the Ryan budget would come from programs for lower-income families, according to Bob Greenstein. Nothing in the Ryan budget or their revealingly titled “House Republican Plan for America’s Job Creators” demonstrates sincere concern for inequality, poverty, upward mobility, or unemployment.

The Economic Opportunity Institute, a partner of EPI’s Economic Analysis and Research Network (EARN), and Social Security Works-Washington have a catchy new slogan on the future of Social Security: “Just scrap the cap.”

Hoping to spread their message, EOI and SSWW produced a hilarious but poignant music video featuring seniors rapping about moving in with their son because their Social Security benefits were cut. Both of the lead actors are union activists and somehow maintain a straight face throughout the video.

“Just scrap the cap” refers to the groups’ preferred policy of subjecting all workers’ earnings to Social Security taxes. Currently, the “earnings cap” is  $106,800 , meaning that workers who earn more than this face a tax rate of zero on each dollar over the cap. And this cap rises only at the rate of average wage growth in the economy; given that earnings at the top of the distribution have risen much faster than this overall average for decades, this means that a rising share of economy-wide earnings spills over the cap, reducing the tax-base for Social Security.

The Goldman-Sachs macroeconomics team is calling for the Federal Reserve to get really aggressive to help the economy. Paul Krugman, “out of a combination of a sense that support is building for a Fed regime shift and sheer desperation,” gets on board as well. Meanwhile, the Center for Economic and Policy Research’s Dean Baker has been there for a while.

And now the big guns – me and my 400 words in U.S. News and World Report. Really, the pressure has become irresistible now, no?

Macroeconomic Advisers has a new analysis of the Republican alternative to the American Jobs Act.

Bottom line job impact through 2013:

• Obama’s American Jobs Act: +1.3 million
• Republican’s Jobs through Growth Act: zero (or worse).

Read below via Macroadvisers: Man Up: AJ(obs)A vs. J(obs)TGA (emphasis added):

Last week the Republican leadership unveiled the Jobs through Growth Act (JTGA) as a counterpoint to the President’s proposed American Jobs Act (AJA).[1] JTGA includes a Balanced Budget Amendment (BBA), reform of the income tax code, repeal of “Obamacare,” Dodd-Frank, and other regulations, fast-track authority for the president to negotiate new trade agreements, and the easing of restrictions on the exploration for new domestic sources of energy.

Without more detail on the Republican plan, we cannot offer a firm estimate of its economic impact in either the short or long run. However, if what we do know of JTGA were enacted now, we would not materially change our forecasts for either economic growth or employment through 2013.

If actually enforced in fiscal year (FY) 2012, a BBA would quickly destroy millions of jobs while creating enormous economic and social upheaval.Read more

As I wrote in an earlier blog post, the American Jobs Act contains about $35 billion of extremely needed state and local budget relief. It also appears that this will be the first piece of the AJA to reach the Senate.

This is one of the most important pieces of the entire jobs package, and probably the most misunderstood.

First, it’s important to understand that this is not a “bailout,” as Sen. Mitch McConnell (R-Ky.) would have you believe. State budget shortfalls have not been caused by fiscal mismanagement, but rather by the weakness of the national economy, over which any individual state has little power. But because they must balance their budgets, their budget cuts do collectively drag on economy-wide growth. In other words, the justification for state and local budget relief has little to do with helping governments themselves and everything to do with protecting the economy from harm.

Second, state and local budget relief is often criticized as only helpful to government workers. Again, wrong. It’s true that providing budget relief would lead to fewer layoffs of firefighters, police, and teachers. And that’s a great thing—it’s not like the recession has magically caused our streets to get safer, houses more fireproof, and students more self-taught. We still need these public services as much as ever before, and by skimping on them now in the name of budget austerity would just inflict needless pain.

But, according to research I conducted a few years back (research that’s unfortunately still extremely relevant), over 60 percent of the job impact of state and local budget relief would fall in the private sector. There are four primary ways in which state and local budgets in particular support private-sector jobs:

1) Transfer payments: A significant portion of state budgets goes toward transfer payments, such as Medicaid or unemployment benefits. These programs have some overhead costs, but the vast majority of these funds go straight into consumers’ pockets, who then spend the money in the private sector.

2) Private contracting: More and more work is being done on the local level not by government workers, but by private workers on public contracts. See those construction workers repairing that bridge on your way to work? They’re likely employed by a private contractor, but if the government cuts highway spending, poof! Their job is gone.

3) Equipment suppliers: While many services are subsidized or contracted out by the public sector—and thus actually provided by the private sector—others are provided in-house. Public safety and education come to mind. But the funds aren’t all spent on public employee salary and benefits—much of it is spent on equipment and materials as well. Firefighters need hoses and trucks, and teachers need books, computers, and chalk. Everyone needs office supplies. And all those goods are produced by private-sector workers.

4) Re-spending: The first three items in this list show how budget cuts can cause private-sector job loss. True, there will be public-sector job loss as well. But as all these workers lose their jobs—both private and public—they cut back on their spending on food, clothing, durables, and other consumer goods. And who provides consumer goods? Private-sector workers.

Viewing state and local budget relief as only affecting the public sector underestimates just how intertwined the public and private sectors really are. State and local governments are creating a substantial drag on economic growth because they’re being forced to cut back, and that economic slowdown is hurting everyone. Budget relief is thus a highly targeted and effective way to maintain public services and reduce joblessness, both public and private, throughout the economy.

The ongoing Occupy Wall Street movement launched on Sept. 17 and its “We are the 99 percent” campaign highlights that the top 1 percent has fared very well while the 99 percent have not fared so well over the last few decades. (The conservative rebuttal, “We are the 53 percent,” referring to households with positive federal income tax liability, is insultingly flawed and misleading.) OWS’ mantra is easily supported by data, as EPI President Lawrence Mishel highlighted in this week’s economic snapshot.

From 1979 to 2007, the inflation-adjusted pre-tax incomes of the highest-income 1 percent of families (in 2011, the 1 percent are those with incomes exceeding $441,000) increased 224 percent. Think that’s impressive? The incomes of the top 0.1 percent rose 390 percent. So where does that leave the rest of us?

For the bottom 90 percent of Americans, incomes grew just 5 percent over the same 28-year period. Whether it’s the bottom 90 percent or the OWS folks’ 99 percent, this much is clear: We have a winner-take-all economy and the substantial rise in economic inequality has prevented the vast majority from improving their living standards in line with what was possible. The nation’s not broke, even if the bottom 99 percent are.

It’s popular to criticize Keynesian economics by alleging that the Recovery Act was an experiment in fiscal expansion, and because two-and-a-half years later the economy still hasn’t roared back to life, it must have failed.

What this criticism forgets is that the federal government isn’t the only government setting fiscal policy. While the federal government did conduct Keynesian expansionary fiscal policy over the last few years, the states have been doing the reverse, acting, as Paul Krugman put it, like “50 Herbert Hoovers” as they cut budgets and raise taxes. They’re forced to do this because the cratering of private-sector spending which threw the economy into recession blew huge holes in their budgets (in particular with a huge fall in income, sales, and property taxes, and increases in demands on safety-net programs), and just about all of them are required to balance their budgets each year. Overall, states have had to close over $400 billion in shortfalls over the last few years – this is spending power siphoned off from the economy and acts as a significant “anti-stimulus.”

This means that just looking at the amount of federal stimulus that’s been enacted significantly overestimates how much fiscal support has actually been pumped into the economy. In fact, as the Goldman Sachs graph below shows, the net fiscal expansion across all levels of government only lasted through the third quarter of 2009. For the last two years, state and local cuts have been overwhelming the federal fiscal expansion, making overall fiscal policy across all levels of government actually contractionary and creating a net drag on economic growth.

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What’s needed to reverse this drag of public-sector austerity on growth? The $35 billion for state and local aid that’s part of the American Jobs Act is a good start, as it would help keep states and local governments from being forced to cut further. As the last two years of austerity have shown, this would only serve to further weaken the economy. And if we’re going to get out of this economic hole, we first need to stop digging down further.