Archive for February, 2012

Hey Jack, It Only Takes a Simple Majority to Pass a Budget in the Senate

Tuesday, February 14th, 2012

This weekend, Jack Lew made the rounds on the Sunday talk shows to discuss the President’s budget. If you don’t know who Jack Lew is, he was the White House budget director under both President Clinton and President Obama, and now serves as Obama’s Chief of Staff.  This is the exchange that took place on CNN (copied from Politifact):

On the Feb. 12, 2012, edition of CNN’s State of the Union with Candy Crowley, the host said to Lew, “I want to read for our viewers something (from) Sen. Harry Reid, the Democratic majority leader in the U.S. Senate, who said, we do not need to bring a budget to the floor this year. It’s done. We don’t need to do it, talking about last year’s two-year agreement and saying that, you know, … it’s already done.”

Lew responded, “Well, let’s be clear. What Sen. Reid is talking about is a fairly narrow point. In order for the Senate to do its annual work on appropriation bills, they need to pass a certain piece of legislation which sets a limit. They did that last year. That’s what he’s talking about. He’s not saying that they shouldn’t pass a budget. But we also need to be honest. You can’t pass a budget in the Senate of the United States without 60 votes, and you can’t get 60 votes without bipartisan support. So unless Republicans are willing to work with Democrats in the Senate, Harry Reid is not going to be able to get a budget passed. And I think he was reflecting the reality that that could be a challenge.”

Here’s the exchange from “Meet the Press” (this transcription comes from Real Clear Politics):

David Gregory, moderator of “Meet the Press” on NBC: Here’s a stat that a lot of people may not know but is pretty striking: The number of days since Senate Democrats passed a budget is 1,019. Can you just explain as a former Budget Director, how do you fund the government when there’s no budget?

Jack Lew, Obama’s Chief of Staff: Well, one of the things about the United States Senate that I think the American people realized is that it takes 60, not 50 votes to pass something. And there has been Republican opposition to anything that Senate Democrats have tried to do. So it is a challenge in the United States Senate to pass legislation when there’s not that willingness to work together.

Congress didn’t do a great job last year. It drove right to the edge of the cliff on occasion after occasion. I actually think it’s unfair to blame the United States Senate for that. A lot of that was because of the extreme conservative approach taken by House Republicans.

Gregory: Your party controls the Senate, does it not?

Lew: Yeah, but the positions that ended up tying the Congress in knots came out of the House, came out of the Tea Party wing in the House.

I’m not sure if I’m more shocked by Lew’s statement, or the fact that Gregory didn’t call him on it. It only takes a simple majority to pass a budget in the Senate. It can not be filibustered by the minority party.

From Politifact who gave his statement a “False”:

On the specific question he was asked — about the congressional budget resolution — Lew said you need 60 votes to pass it. That’s flatly wrong.

From the Washington Post who awarded Lew with “Four Pinocchios”:

We might be tempted to think Lew misspoke, except that he said virtually the same thing, on two different shows, when he was specifically asked about the failure of Senate Democrats to pass a budget resolution. He even prefaced his comment on CNN by citing the “need to be honest.”

He could have tried to argue, as some Democrats do, that the debt-ceiling deal last year in effect was a budget resolution. Or he could have spoken more broadly about gridlock in the Senate, after acknowledging a traditional budget resolution had not been passed. Instead, the former budget director twice choose to use highly misleading language that blamed Republicans for the failure of the Democratic leadership.

We wavered between three and four Pinocchios, in part because the budget resolution is only a blueprint, not a law, but ultimately decided a two-time budget director really should know better.

It’s been a personal pet peeve of mine that the Democrats in the Senate have failed to present a budget in more than 1,000 days. It’s also difficult to believe that as the budget director under both Clinton and Obama, that Lew didn’t know exactly what he was saying. The problem is that you reach way more people on CNN and NBC with the lie than you ever will with organizations like PolitiFact and the Washington Post calling him on it.

Behind the Unemployment Numbers

Saturday, February 4th, 2012

I’ve had a variation of this discussion at least a dozen times in the last year. Can President Obama be reelected? Absolutely. My response has basically been this: If unemployment remains above 8.5%, he’ll have a very difficult time getting reelected or convincing voters that the economy is improving under his stewardship. If unemployment falls below 8%, he has a good chance of being reelected. He can make the argument that things are getting better, just more slowly than we had hoped.

I’m sure you’ve already heard a variation of this from the White House many times.

The new jobs report came out this week and unemployment has fallen to 8.3%. From CNN: “Employers added 243,000 jobs in January, the Labor Department reported Friday, marking a pick-up in hiring from December, when the economy added 203,000 jobs. Meanwhile, the unemployment rate fell to 8.3%. That is the lowest since February 2009.”

On the surface, these look like good numbers for the economy, and great news for President Obama’s reelection campaign.

Unfortunately, this only tells part of the story.

When you see the number of jobs created, keep in mind that we need a monthly increase in the total number of jobs of about 100,000 just to keep pace with the growing population. And for instance, if 20,000 jobs are eliminated, then we need an increase of 120,000 new jobs just to keep the status quo. That’s more than one million new jobs per year.

(NOTE: I’ve seen many variations of these numbers over the years, and I’m unsure what the exact number of new jobs are that we need to create on a monthly basis. I’ve seen estimates anywhere from 85,000 to 150,000 new jobs needed per month. For today’s post, the exact number is not the point. We must create a lot of jobs just to MAINTAIN the current unemployment rate due to the growing population.)

But how does the unemployment rate drop from 8.5% to 8.3% when the economy creates 243,000 jobs? It can’t. The math doesn’t work. Unless the size of the workforce decreases. This may be one of the most important and least reported employment numbers by the media.

And this is one of the most significant problems we face today.

Labor Force Participation Rate

(Click on image to enlarge.)

The labor force expands in two ways. One, the population grows. And two, the percentage of Americans who consider themselves part of the workforce increases. This graph shows the labor force participation rate in the United States. In the ’80s and ’90s, the percentage of the population who considered themselves part of the workforce increased. For the last ten years we’ve seen these numbers continue to decline other than a short period preceding this most recent recession. Over the last couple of years, these numbers have been plummeting.

Americans are fleeing the workforce in droves. President Obama only needs a few million more people to leave the workforce to get his unemployment numbers under 8%.

Reagan Recession vs Obama Recession
Unemployment is a trailing indicator of the economy. The economy gets bad, and months later you see unemployment numbers rising. The economy gets better, and months later you see unemployment numbers going down. At least, this is what typically happens.

Following the Reagan recession, unemployment topped out at 10.8% late in 1982. Following the Obama recession, unemployment topped out at 10.2% in early 2011. The duration and depth of these two recessions are very similar. In each case, the recession was officially over months earlier. It takes several months to get to the peak unemployment numbers following a recession.

Keep in mind the chart above where labor force participation was increasing in the ’80s compared to what we see today. And here’s where we start to see some significant differences in the numbers behind the numbers.

From IBD: “To get a better sense of how bad Obama’s recovery is, consider this: Under Obama, real GDP has climbed a total of just 6% in the two-and-a-half years since the recession ended in June 2009. By comparison, real GDP had grown 16% by this point in the Reagan recovery, after the very deep and painful 1981-82 recession. Had Obama’s recovery been as powerful as Reagan’s, the economic pie would be $1.2 trillion bigger today. And had job growth under Obama kept pace with job growth during the Reagan recovery, there would be 10 million — yes 10 million — more people with jobs today.” (I added the bold.)

So during the Reagan recovery, the unemployment rate dropped despite the fact that the workforce increased by millions of workers.

And during the Obama recover, the unemployment rate has dropped because millions of workers have left the workforce.

IBD goes on to explain:

So what’s different? The presidents’ policies.

Reagan enacted sweeping and permanent tax cuts, aggressively eliminated or reduced regulations, reined in domestic spending, and championed the private sector.

Obama’s approach has been the opposite — a huge increase in regulations; meager, targeted and temporary tax cuts; a massive increase in size and scope of the federal government; and a barrage of invective against businessmen and the wealthy. Obama has bashed Reagan’s approach, saying that cutting taxes and regulations “has never worked” to spur growth.

The article in IBD was written before the new unemployment numbers came out. But here’s a recent article by one of my favorite writers, James Pethokoukis. Here’s the meat of his post:

1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7 percent then vs. 63.7 percent today—the U-3 unemployment rate would be 11.0 percent.

2. But let’s not go all the way back to January 2009. In January 2011, the unemployment rate was 9.1 percent with a participation rate of 64.2 percent. If that were the participation rate today, the unemployment rate would be 8.9 percent, instead of 8.3 percent. As an analysis from Hamilton Place Strategies concludes, “Most of the shift of the past year is due not to the improvement in the labor market, but the continued drop in participation in the labor force.”

3. Now, to be fair, some of the decline in the participation rate is aging Baby Boomers dropping out of the labor force. But taking that into account still doesn’t get us very far, as HPS notes: “Demographic projections expect that participation rate to be at 65.3 percent. If that full participation rate is the goal, our economy is “missing” 3.8 million workers, up from the 3.4 million we noted in the white paper. The unemployment rate in that context has not budged at 10.4 percent.”

4. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate is still a sky-high 15.1 percent.

5. If the participation rate does level off at its current rate, according to HPS, the economy would need to generate 231,000 jobs per month to get below 8 percent unemployment by Election Day.

One more comment and we’ll move on. When the economy does actually begin to make some real improvement, disenfranchised workers will again start looking for jobs. It’s possible that a stronger economy will actually begin to drive up the unemployment numbers because of a higher percentage of people engaged in the workforce. Not much good news in any of these numbers.