As an advocate for education policies to help children living in poverty narrow the achievement gap, I, like many others, tend to think of the Bronx, Newark, and East St. Louis as epicenters of stubborn rich-poor and white-Black achievement gaps. But the Great Recession has put millions of children living in suburbs and even in the bucolic “heartland” of America in dire educational straits. And as a recent New Yorker article illustrates, this reality has been festering for a decade, with origins long before the housing and economic busts of the past few years.

So-called education reformers and the “experts” on whom they rely point to unions, lazy teachers, and uninspired principals as the culprits. Yet, 50 years of rigorous evidence make clear the vicious impact of poverty and its various familial stresses on student well-being. This body of research is backed in real time by the inability of No Child Left Behind, Race to the Top, and other policies focused on standards-and-accountability measures to substantially narrow the gaps.

George Packer’s assertion that since September 11, “the country’s problems were left to rot” is all-too clearly played out in Mount Airy, N.C., the town that inspired Andy Griffith’s Mayberry. This American small town is indeed, Packer says, typical, but not in any ideal way. Rather, Surry County’s job losses have spread since 9/11 from former textile workers to veterans newly back from multiple tours in Iraq and Afghanistan. Packer concludes ominously that “You were your kids’ hero when you went, but three years later, when you might be losing your home or you’re impoverished, you might not be your kids’ hero anymore.” Long-term unemployment, unstable housing, insufficient food and stressed-out home environments also mean that you won’t be the same parent or teacher anymore. Mayberry, welcome to the Bronx.

Over at the American Enterprise Institute blog, James Pethokoukis responds to my recent paper, Regulatory uncertainty: A phony explanation for our jobs problem, and blog post. I presented evidence that trends in investment, private-sector job growth, unemployment, and work hours were not inferior in this recovery compared to other recent job-challenged recoveries. That is, I noted that this recovery fares well relative to the recoveries under George W. Bush and George H. W. Bush. If you look at what employers are doing rather than what trade associations are saying, you would see that uncertainty about regulations and taxation has not impeded job growth. What we are seeing is what you expect given the slow growth in GDP.

What was especially curious to me is that Pethokoukis has no counter-argument or data other than, “But go ahead and contrast the Obama recovery, instead, to the Reagan recovery where private sector jobs grew 9.9 percent during its first two years.” Really, that’s it. The whole evidence that uncertainty is holding back jobs is that job growth in the Reagan recovery was a “V” recovery. Actually, the first two years of the recovery starting in Nov. 1982 was 9.4 percent, but what’s 0.5 percent job growth between friends? How does 7.2 percent private-sector job growth in the Gerald Ford-Jimmy Carter recovery fit into his story?

Pethokoukis is scrupulous enough to note that I do provide a good reason for the better job-performance in the Ronald Reagan recovery – that recession began with the short-term policy rates controlled by the Federal Reserve at 19 percent! There was plenty of room to use conventional monetary policy to get the economy moving. This time, the economy entered recession with these rates just over 4 percent. Oh, and the fact that this recession was caused by a financial crisis – something that research has shown again and again produces much slower recoveries.

Anyway, this just seems to confirm to me that there is no “there there” in the economic case that uncertainty about regulation and taxation is holding back job growth. I looked for any analysis that those articulating this view could point to and did not find any. I guess they do not have any over there at AEI.

Presidential candidate Herman Cain has made quite a splash with his “999” plan, but the catchiness of the proposal’s branding belies a subtle attack on low- and middle-income working families (and a not-so-subtle windfall for financiers and businesses).

Along with efficiency, the core principal behind a progressive tax code is one of equity—that the distribution of the nation’s tax liability should take into account one’s ability to pay. In other words, Americans with higher income should pay a higher share of their income in taxes than those with lower income. Mr. Cain’s plan would radically jettison this principle of equity along with the rest of the code.

Mr. Cain advocates a 9 percent tax on each of earned income, corporate income, and consumption. This would entail two changes: (1) a drastic cut in corporate and individual income taxes for high-earners, and (2) an increase in income and consumption (sales) taxes for low- and some middle-income households. Additionally, the proposal would eliminate all taxes on capital gains, dividends, foreign profits, and large estates and gifts (objectively the most progressive federal tax)—again a boon to the highest-income and/or wealthiest Americans. In a second bait-and-switch, the diminished taxes on earned income and corporate income would eventually be swapped for even higher taxes on consumption (the so-called “fair tax”).

Indeed Mr. Cain’s plan is just about diametrically opposed to Warren Buffett’s plea to stop coddling multi-millionaires and billionaires, many of whom pay lower effective tax rates than middle-class households because of the preferential tax treatment of investment income. It is hard to fathom a hedge fund manager paying a higher effective tax rate than a secretary under Mr. Cain’s plan; financiers would be able to receive all of their compensation as tax-free investment income and taxable consumption presumably accounts for a smaller share of income (certainly a smaller share than that of Mr. Buffett’s secretary). The windfall from eliminating investment income taxes would accrue to the top 1 percent of earners, who will pay over 70 percent of all capital gains and dividends taxes in 2011.

In recent congressional testimony, Syracuse University professor and tax expert Len Burman stated that “the biggest loophole is the lower rate on capital gains” and that “tax breaks on capital gains undermine the progressivity of the tax system.” Rebuilding an equitable tax code necessitates curtailing, rather than exacerbating, the preferential tax treatment of investment income over work income. That does not mean equalizing taxes on investment and work income at zero rates while amplifying a flat consumption tax, which would be even more regressive.

Mr. Cain’s tax proposal only makes sense if you believe that the problem with the current tax code is that low- and middle-income households have it way too good, and they should give more of their income to those poor Americans making more than half a million dollars a year.

On Monday, The New York Times released a nice graphic showing the changing trends in state unemployment rates immediately before the recession, immediately after the recession, and today. As my colleague Doug Hall explains in a recent blog post, the graphic highlights the lack of significant job growth for the country as a whole, and the exceptionally dire conditions for 11 states in particular. Eight of these 11 states have actually experienced an increase in their unemployment rate since June 2009: Alabama, California, Florida, Georgia, Illinois, North Carolina, and South Carolina.

To get a better understanding of what’s driving the uptick in unemployment for these eight states, I broke down the changes in total employment by major industry category from June 2009 to Aug. 2011. If you calculate the number of jobs lost in each major industry as a percentage of the total jobs lost for each state—excluding all industries that gained jobs—the numbers are very telling. In five of the eight states (California, Georgia, Illinois, North Carolina, and South Carolina), the largest proportion of jobs lost was in the government sector. In both California and South Carolina, more than half the jobs lost were in government. Alabama, Florida, and Nevada saw their largest job losses in construction, which might be expected given the enormous losses those three states took when the housing bubble burst.

States nationwide have had to deal with severe budget shortfalls, and many state legislatures have turned to massive budget cuts as the cure-all. With so many states struggling to regain jobs lost during the recession, adding public sector workers to the ranks of the unemployed is clearly a step in the wrong direction. Moreover, addressing budget shortfalls through budgets cuts not only decimates the public sector workforce, but it also devastates the private sector. (My colleague Ethan Pollack’s research shows that, “for every dollar of budget cuts, over half of the jobs and economic activity will be lost in the private sector, for a number of reasons,” including the fact that a significant portion of state spending is  on goods and services supplied by the private sector.)

Click table to enlarge

The Kaiser Family Foundation’s annual survey of employer health-insurance was released yesterday, and it showed a 9 percent increase in premiums for employer-sponsored premiums.

The average family plan now costs over $15,000. Employees kick in just over $4,000 directly, but most economists will tell you that they actually “pay” the remainder in the form of wages that are lower than they would be if this insurance was not provided by their employer. This is, as everybody knows, a staggering cost for most American families. And, while year-to-year changes in premiums may differ from underlying health care costs, the enormous increases in health spending in recent decades can pretty much be explained by these underlying medical costs – so if we want premiums to stop rising so fast, we better do something about these underlying costs.

One would be remiss to not point out that America’s largest single-payer insurance system (Medicare) actually has done a much better job of controlling health care costs than the private system that provides employer-sponsored insurance. Take the most recent estimates comparing per beneficiary costs in Medicare to costs of comparable benefits in private plans (table 13 here). If these private costs had matched the slower growth rate of Medicare over the past three decades, that $15,000 family plan would cost just over $10,000 today. And most experts think that there’s plenty to be done to even restrain Medicare’s costs. In short, there seems to be a lot of room to figure out how to reduce cost-growth – and very good reasons (about $5,000 worth, in the case of family premiums) to do it.

But, since the point of this post is more raw speculation, it’s also useful to think about the role of rising economic inequality in driving up health care costs. A recent paper in Health Affairs (gated, sorry) by Miriam J. Laugesen and Sherry A. Glied demonstrates that physician salaries (particularly specialists – orthopedists, in their study) are significantly higher in the United States than compared to even those in our rich industrial peers. The authors make the smart point that, “One explanation for the higher incomes of U.S. physicians may lie in the broader U.S. income structure. The share of income received by people in the top 1 percent of the U.S. income distribution far exceeds the corresponding share in the comparison countries.”

The intuition is simply that prospective doctors need to earn more as doctors in the United States in order to keep them from pursuing high-salary careers in finance, law, etc. The broader point is that if doctors are going to be in the upper reaches of the income distribution (which seems fine – they are well-trained, accomplished people), and if policies are pursued that drive vastly disproportional growth in these upper reaches, then this means my insurance premiums are going to get expensive; one person’s income is another person’s cost. This point applies to doctors’ salaries as well as to many other aspects of the medical-industrial complex (pharmaceutical companies, device-makers) and it’s one that we should think about right away when we read the Kaiser report.

The New York Times recently provided a perfect illustration of the dynamics behind the declining marriage rate in its story on Reading, Pa., the city with the highest poverty rate in the country in 2010. It featured the story of Ashley Kelleher, a waitress at an International House of Pancakes, who has been supporting her three children as well as the father of two of them.

“For the past five years, it has been me paying the bills,” she said. Kelleher said she wants to get married someday, but only to a partner who is financially stable. The man she is with now, however, is not.

Social conservatives have looked everywhere for explanations for the decline of heterosexual marriage, everywhere but the American economy. But the research on this issue clearly shows that financially insecure men are less likely to marry.

We can see the relationship between men’s earnings and marriage in the figure below. The figure shows “less money, less marriage,” to quote the authors of a recent report from Pew Social and Demographic Trends. Although the Pew research shows “no significant differences by education or income in the desire to get married,” the less money a male has, the less likely he will actually marry.

For the past 30 years, more and more of America’s income and wealth has been concentrated among America’s rich, leaving less and less for everyone else. With the decline of manufacturing and the decline of unions, men have been particularly hard hit. Half of male workers have experienced stagnating or declining wages over the last 30 years. For Latino and African American men, it is more than half. As a larger share of men are pushed down the earnings scale, their likelihood of marrying declines.

The decline of marriage is a collateral consequence of the growing economic inequality over the last 30 years. If social conservatives want more people to marry, they will need to insist on less economic inequality.

See Reducing poverty and increasing marriage rates among Latinos and African Americans for more on this issue.

Today, the Kaiser Family Foundation and Health Research & Education Trust released their Employer Health Benefits 2011 Annual Survey. It’s full of great charts and graphics about the state of employer-sponsored health insurance premiums, costs to workers, types of plans, and much more.

The top line numbers alone are fairly shocking. Average family health insurance premiums rose from $13,770 in 2010 to $15,073 in 2011, up 9 percent. In 2010, total family premiums had only risen 3 percent, but the leading story then was about how employees were paying an increasing share of the total premium, on average 30 percent for family plans.

To put these numbers in perspective, Kaiser/HRET compares both total health insurance premiums and the portion of premiums paid for by workers to workers’ earnings and overall inflation from 1999 to 2011. Their figure, displayed below, illustrates how premiums have risen over three times faster than workers’ earnings and four times faster than overall inflation.

Click figure to enlarge

Given the high cost of employer-sponsored health insurance, it comes as no surprise that the share of non-elderly Americans with such coverage fell from 2000 to 2010, as shown in the Census data released earlier this month. The combination of a bad economy, general lack of bargaining power among workers, and steeply rising health insurance prices in 2011, as shown in today’s release, will surely lead to lower coverage rates, when the Census data on health insurance coverage comes out next year.

Republican politicians and business groups keep telling us that business investment and hiring is being held back by uncertainty over future regulations and taxation. For instance, Maine Senator Susan Collins said in introducing her bill to put a moratorium on all new regulations:

“Businesses, our nation’s job creators and the engine of any lasting economic growth, have been saying for some time that the lack of jobs is largely due to a climate of uncertainty, most notably the uncertainty and cost created by new Federal regulations.”

Her view has been repeated by others – like House Majority Leader Eric Cantor  and the Chamber of Commerce. This story is also being told by some of the dissenters on the Federal Reserve Board’s Federal Open Market Committee, as Mike Konczal recently reported. Nobel Laureate Robert Lucas just made this argument in a Wall Street Journal interview, but he at least had the decency to note, “I have plenty of suspicions but little evidence.”

In a recently released paper, I present evidence that if you examine what employers are actually doing in terms of hiring and investment, this story about regulatory (or tax) uncertainty driving current job trends does not hold up. Private sector job growth has been weak in each of the last three recoveries and the current recovery’s private job growth matches up with the early 1990s recovery and is far better than that of the 2001 recovery. Investment in equipment and software has been stronger in this recovery than in the prior two recoveries. Last, weekly work hours are still substantially below those prior to the recession: uncertainty about future regulations cannot explain why employers do not increase work hours of currently employed workers to meet current demand for goods and services. A reasonable explanation for this work hours puzzle is that those sales opportunities do not actually exist, i.e., demand is lacking.

READ MORE: Regulatory uncertainty: A phony explanation for our jobs problem

If you also examine what employers and their economists are saying in private surveys, you find that what businesses actually identify as their challenges does not fit this story either. In other words, what the heavily politicized trade associations in Washington (like the Chamber) are saying does not correspond to the real challenges facing both large and small businesses.

The National Federation of Independent Business (NFIB), which describes itself as “the leading small business association representing small and independent businesses,” does a regular survey of small businesses. One question that has been asked since 1973 is, “What is the single most important problem your business faces?” The answer choices are inflation, taxes, government regulation, poor sales, quality of labor, interest costs, health insurance costs, the cost of labor, and other matters. Interestingly, the single largest response is “poor sales,” the choice of 30 percent of respondents since President Obama was sworn in (averaging the 10 quarters between early 2009 and Spring 2011). That seems to accord with slack demand as the key concern of small businesses.

However, I was on a radio panel discussion with an economist from the Heritage Foundation who acknowledged this fact, but then highlighted that taxes and regulation were the next highest concerns identified in the NFIB surveys—evidence, he claimed, that tax and regulatory uncertainty were also preeminent. And, he correctly cited the data. In the Obama years, some 13.9 percent of small businesses identified government regulation and another 20.8 percent identified taxes as their primary problem, the leading answers after “poor sales.” I was fortunate enough to obtain the entire historical series (back to the fourth quarter of 1973) on this question from the NFIB so I could put this in historical perspective, constructing the averages for each presidential term as shown in the figure below:

Click figure to enlarge

It turns out that small businesses have always complained about regulation and taxes and not especially so under Obama. For instance, the share concerned about regulation under Obama (13.9 percent) is not substantially higher than under George W. Bush (9.9 percent and 11.0 percent) or Ronald Reagan’s second term (12.8 percent). There is also less concern about regulation under Obama than under Bill Clinton or George H.W. Bush. Recall also that there was rapid employment growth in the second Clinton term, so high concerns about regulation (which rose steadily from Reagan’s first term to their highest level in Clinton’s first term) are not necessarily associated with poor employment growth.

There’s a similar story on taxes. Sure, there are 20.8 percent of respondents on average in the Obama years who see taxes as the primary problem facing their business. Yet, that intensity of concern about taxes is not all that different than under George W. Bush and is less than the presidential terms from the first Reagan term through Clinton’s second term. It is hard to find a recent spike in concern about regulations or taxes that supports a story of escalating uncertainty or fears of regulations holding back the economy.

There is a striking set of graphics in yesterday’s New York Times that explores “The Nation’s Unemployment Landscape.” A series of three maps of the United States shows state level unemployment rates when the recession began in Dec. 2007, when it ended (according to the Business Cycle Dating Committee, National Bureau of Economic Research) in June 2009, and the most recent state unemployment data, showing state unemployment rates in Aug. 2011. Accompanying the maps are a series of line graphs showing the unemployment rates in the 11 states with the highest current unemployment rates (from Illinois’ 9.9 percent unemployment rate to Nevada’s crippling 13.4 percent unemployment rate).

There are several noteworthy stories to highlight in these maps and graphs, and some important caveats that may not be readily apparent from these visual aids. The first story is that for most states, there has been very little change – positive or negative, since the end of the recession over two years ago. This simple fact alone highlights the fact that the “recovery” has been very weak, and from the perspective of working families, essentially non-existent. As one would expect given that national unemployment rates have improved very little since the end of the recession (from 9.5 percent in June 2009 to 9.1 percent in Aug. 2011), some states are doing slightly better, others slightly worse than in June 2009.

Of the 11 states with the highest current unemployment rates, Michigan alone has a generally positive story to tell (and even that story comes with a cautionary footnote).  Since June 2009, Michigan’s unemployment rate has fallen from 13.8 percent to 11.2 percent (still two percentage points above the national average). What accounts for this relatively positive news for Michigan, transitioning from being the state hardest hit by the recession to a state experiencing a relatively successful recovery? The successful bailout of the auto industry by the Obama administration and specifically, the turnaround by General Motors, which deserves considerable credit for boosting the Michigan economy while showing that government intervention, and even dabbling in what could properly be considered industrial policy, actually works to improve the well-being of working Americans.

Unfortunately, even Michigan’s story is tainted by a recent, though widespread upward blip in unemployment rates. Of the 11 states highlighted in the Times piece, eight show a clear recent increase, in most cases erasing much of the progress made since the end of the recession. In approximately half of the 11 states, unemployment rates in Aug. 2011 were clearly higher than they had been in June 2009. Among the 11 states, only Michigan’s rate is clearly an improvement over the June 2009 rate (the balance showing little change).

The focus on unemployment rates rather than job growth in the Times piece is a wise one, discouraging political grandstanding based on selective cherry-picking of economic data. Texas Governor Rick Perry has been outspoken, touting the so-called Texas Miracle.  State unemployment data show one way in which this mythical economic tale is misleading. In Aug. 2011, Texas’ unemployment rate of 8.5 percent stands nearly double the Dec. 2007 rate of 4.4 percent, and also above the June 2009 rate of 7.7 percent. While it’s true that over this time period the Texas economy has added many new jobs, the rate of job growth has only just begun to keep up with the growth in population over this time. The Texas based Center on Public Policy Priorities notes that the Aug. 2011 unemployment rate of 8.5 percent marks the 24^th consecutive month of unemployment at 8 percent or higher. Moreover, they provide data showing a jobs shortfall – the number of jobs needed to return to pre-recession unemployment rates – of over 633,000.

The other dimension lacking from the story of job creation concerns the quality of jobs created, a topic on which I’ll focus greater attention in my next post.

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Last week, President Obama spoke in Ohio and pressed Congress to boost federal investment in the nation’s infrastructure. This serves as a great time to reiterate all the reasons why boosting infrastructure investments is a no-brainer:

1)  Our infrastructure is terrible. More than one in four bridges are structurally deficient or functionally obsolete, indicating that the Minnesota bridge collapse wasn’t an isolated event. The American Society of Civil Engineers conclude that we need to double our investment in surface transportation infrastructure just to keep it from literally crumbling beneath our feet.

2)  Win the future. Public investments such as infrastructure are vital to long-run economic growth and fuel higher incomes and living standards for decades. A recent and comprehensive review of the literature on this topic finds that a sustained 1 percent increase in public capital growth rate translates into a 0.6 percentage-point increase in the private-sector GDP growth rate.

There’s an even stronger case for doing it now:

3)  It creates jobs. Regular readers of this blog won’t need to be reminded that millions of Americans are still suffering under the worst jobs crisis since the Great Depression. Job creationh as become an economic, political, and moral imperative. Infrastructure investments create jobs now, when we need them most.

4)  A LOT of jobs. Infrastructure creates 16 percent more than a payroll tax holiday, nearly 40 percent more than an across-the-board tax cut, and over five times as many as temporary business tax cuts. We need to squeeze as much job creation out of each dollar of cost, and infrastructure certainly passes the test.

5)  It’s targeted. The construction industry has been disproportionately hammered by the recession and has even greater unemployment levels than the economy as a whole.

6)  We’ve got cheap financing. The recession has precipitated a capital flight to safety, with the safest assets being U.S. government bonds. That has made the cost of borrowing insanely cheap (10-year Treasuries hit a record-low last week), with real interest rates actually negative. Capital markets are actually paying us to borrow their money.

7)  We’re getting great deals. During economic downturns, infrastructure projects are less costly as many contractors are competing for work amidst slack labor and capital markets. Many states actually had difficulty getting Recovery Act infrastructure funds out the door because contract bids kept coming in below the states’ original estimates.

8)  Delay costs money. Deferring maintenance of our infrastructure saves money in the short run, but costs much more in the long run. It’s certainly cheaper to repair a bridge than to rebuild it after its collapse.

9)  There’s no one else. States governments are facing nearly $150 billion in shortfalls in this fiscal year and the next, and, unlike the federal government, states generally cannot run deficits. Adding to this situation, fiscal relief from the Recovery Act has petered out, falling from $127 billion over the last two years to only $6 billion over the next two years. Local governments face equally difficult fiscal challenges. At this point in time, only the federal government can make these needed investments.

Economic policy tends to be pretty complex stuff, but this is a BIG exception. We need infrastructure work, we need jobs, the price is low, and we’re being given nearly free money to do it. All we lack is the political will.