Catherine Ruetschlin Sorry, what I was trying to say about the ballooning deficit being a result of health care costs was really about the future growth of the deficit - that looming threat that it will at some point get out of control and amount to a figure that crushes growth. And in terms of deficit growth health care costs are the main driver. here's a neat little calculator that allows you to check out the impact of health care: http://www.cepr.net/calculators/hc/hc-calculator.html and here's a short but recent news article that explains more: http://www.reuters.com/article/2012/02/07/us-usa-budget-healthcare-idUSTRE81615Q20120207 It's true, we will have deficits even if we keep health costs low. But they won't be the menace we'll face if we don't.
Catherine Ruetschlin Thanks Ben for being so involved in this discussion. I really agree with you that our employment level is holding back growth. That is the point I was trying to make about running a deficit now, in order to address that problem. We could make up for stimulus spending today with high growth rates in the future if we use the money effectively. But in the long run, our ballooning projected deficit results from the growing cost of health care. Any attempt to keep the deficit under control has to address those first. An adequately funded and smartly directed stimulus plan that puts the US back on a high growth path, coupled with effective measures to quell the rising cost of health care could allow us to have our cake and eat it too.
Catherine Ruetschlin This is really a values statement, which is of course welcome and I'll respond in kind. In my opinion, the most responsible thing we could pass on to America's descendants is a functioning economy, with high productivity and well maintained infrastructure that allows for future growth. Running deficits now will allow that to be our legacy, rather than a hamstrung system that cannot respond to world events like the business cycle. There is no legitimate historical or theoretical reason to cap spending at an arbitrary level of GDP, the way Tea Party politicians propose. "Fiscal sanity" (again, an opinion) is collecting adequate revenues to fund the social values we deem collectively important, and doing it efficiently.
Catherine Ruetschlin A deficit our size is not a problem in an economy that's growing. And the strong dollar is actually holding back our exports, keeping our employment level down and our trade out of balance. That's really because countries that hold dollars or US debt would prefer it that way, and they're keeping the rate of exchange artificially high. A little weakening could do us some good right now. As could a little more fiscal (not monetary) stimulus, for the sake of that growth I mentioned above. I believe that Paul was talking about fiscal policy - taxes and spending - for Keynesian stimulus, and not the Fed.
Catherine Ruetschlin It always seemed to me that the problems in our tax code were something that both right and left could agree on. After the failure of the deficit talks I thought addressing it would be a smart tactic from either side to regain public trust, and I was perplexed that no one in Washington picked up the issue. Why do you think it's been so difficult?
Catherine Ruetschlin (...continued...that character limit is killing me) Of course, it’s popular to talk about structural unemployment because it makes the problem one of individual responsibility rather than macroeconomic policy. It’s a convenient story, if not actually true, and deserving of an article addressing the facts. I’ll think more about that for sure. Thanks for your comments!
Catherine Ruetschlin Great point Kathleen! The kind of unemployment that you’re referring to – that from a skills mismatch – is called structural unemployment, and there’s been a lot of research from Dean Baker and John Schmitt at CEPR as well as the San Francisco Federal Reserve showing that most of our country’s unemployment is not structural. Really the evidence is pretty clear – there are more than 15 million people looking for jobs but only about 3.4 million jobs available. The number of job openings has actually declined over the last two months. And if unemployment were due to a skills mismatch, economic theory would predict a rise in wages for those with the skills most in demand – we’re not seeing anything like that either.
Catherine Ruetschlin Elimination of the cap would certainly go a long way. Or at the very least we could raise it to cover 90% of income, where it was set by the Greenspan Commission in the 80s. SS's claim on total income has only declined because of the top-heavy income distribution in the years since, and that was unplanned for. I do like both of these ideas about temporary incentives to leave the labor market. But it is my understanding that most Americans will rely on social security to complement their (inadequate) retirement savings. This may seem like a whole separate crisis from the nation's unemployment problems, but if we were to come up with any kind of workable incentive scheme for older workers social security income would have to be a part.
Catherine Ruetschlin I see what you mean, and these considerations are vital for any generation - probably not unique to the Millennials or that much different from yours or mine. In my perspective, the stakes are higher now. If you make a wrong turn and neither graduate from college nor achieve success in another field there are not jobs where you can make a good living, support your family, and plan for your future. Honestly your questions here are good, and hard. And I wouldn't have had the same answer for them when I was 20 that I have now. Neither would you, as you mention above. The risk to answering wrong, though, is getting bigger.
Catherine Ruetschlin While your point about the business cycle is accurate, there are substantial differences for young people today versus the 70s. There are no longer decent-paying full time jobs for people without a college degree - annual earnings for young men at any level of education lower than a BA have declined in the past 30 years. But since the cost of a college education has tripled, for all but the wealthiest the only way to secure a middle-class job is to go into enormous debt. That means that young workers can either enter the labor market and make less than the previous generation did at their age, or take on a lifetime of debt obligations and hope for the best. And even those good jobs lack the benefits and protections of the pre-Regan era.
Catherine Ruetschlin In addition to job creation, we could be using resources to ensure that the jobs we generate are high quality. People may be grateful now to have a part time job with low wages, but in the long term a strong labor force needs to be able to locate the best position for their skills. That's the deficiency that shows up in underemployment but not unemployment. Our focus on job creation rather than job quality neglects the opportunity to place people in jobs where they'll be most productive, and most satisfied. That is, people in part-time low-wage jobs could use some help navigating the labor market, identifying their best opportunities, performing well in interviews, or - even better- turning their bad jobs into good ones.
Catherine Ruetschlin As Sal mentioned below, a direct public jobs program is an efficient way to stimulate the economy. It also provides for future growth and public wealth through improvements in infrastructure. But linking job creation during a recession to individual behavior through welfare reform is not a policy that addresses the cyclical effects on unemployment. We have at least three times as many people who want to work or work more than there are jobs available, so an employment mandate would be counter productive - that's true any time the economy is not expanding.
Catherine Ruetschlin The point about older workers is interesting, especially since their labor force participation rates increased after seeing retirement prospects deteriorate in the financial crisis. I do agree that early retirement, coupled with access to affordable health care would have a positive impact on our unemployment problem. But while decreasing the retirement age makes great sense for the labor market, the popular banter these days is about increasing it - especially in discussions about social security. That policy would be a hit to young workers in the labor market at a time when they are particularly vulnerable.
Catherine Ruetschlin Just because we are not at the nadir of a recession does not mean the economy is healthy. It takes at least 130,000 new jobs each month just to keep up with population growth, so we could be creating jobs and still losing ground (like we were in 2010). not until the last quarter of 2011 did we create enough jobs to treat the demands of unemployment, population growth, and those who dropped out of the labor market. Young people, in particular, are only just now seeing gains. Employment among people under 25 is hit especially hard in recessions, and takes longer to recover. For example, young adults had not even recovered from the 2001 recession when the financial crisis hit, while older workers were at their previous level.