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Article Artículo

Final Thoughts on the Baker-Rowe-DeLong-Krugman Deficit Debate

After having provoked a debate that subsequently involved Nick Rowe, Brad DeLong and Paul Krugman, I will assert blog owners’ privilege and throw out some summary thoughts.

First, we all seem to agree that in a situation where the economy is clearly operating well below its potential, governments can run deficits to boost employment and output. I believe we all agree that in principle the government can also use these deficits to increase future output through productive investment in either physical or human capital. This would make future generations better off on net as a result of deficits today, since the economy will be larger than it would be without the deficits.

I would also add, without necessarily implicating anyone else, that simply by increasing output and employment the government is likely to make society better off in the future for two reasons. First, by keeping people employed we will keep them attached to the labor force and reduce the number of hard core unemployed who would be difficult to re-employ in subsequent years, possibly leaving us with a higher rate of unemployment (and lower output) long into the future.

The other reason that short-term increases in employment can have long-term effects is that by keeping families intact, children are likely to have better upbringings and do better in school. This means that the next generation will on average will have happier more productive lives because we used deficits to keep their parents employed today.

Okay, but even if deficits today don’t reduce output tomorrow, Nick Rowe argues that by increasing the wealth of some members of the current generation (those who hold the bonds used to finance the deficit), we can still be reducing the wealth of members of future generations. The argument here is that if we get back to full employment at some point in the future (this is a full employment argument), the people who hold the bonds will be able to pull resources away from young people who are entering the labor force and were not involved in the decision to run deficits today.

There is some validity to this point, but it is extremely limited. First, it is important to remember that most of the holders of current debt will be people who have children and/or will bequest some of their wealth to their children or charitable organizations. While children may not benefit one to one from the consumption of their parents, surely they benefit in part. Insofar as people with or without children save some of the wealth from the bonds and subsequently will it to children or charitable organizations, today’s deficit will not crowd out any consumption of future generations.

Finally, much of the tax burden of paying the debt service on the debt issued today will be borne by members of the current generation. In that sense it is an issue of intra-generational distribution, not intergenerational distribution.

In short, we can talk about some burden on future generations as a result of debt issued today, if it goes to unproductive uses, but the size of this burden is clearly a fraction of the debt and likely to be a very small fraction in my book. Furthermore, debt is far from the only mechanism through which the government imposes inter-generational burdens of this type.

Dean Baker / October 13, 2012

Article Artículo

Forced Evictions Remain Constant Threat as Permanent Housing Solutions Lag

Nearly three years after the earthquake of January 2010, durable housing solutions remain nonexistent while tens of thousands remain at risk of forced evictions. According to the International Organization for Migration, there are currently 369,000 individuals residing in 541 official IDP camps throughout Haiti. Yet over 20 percent of the remaining individuals are in constant risk of eviction. Fortunately, camp residents are organizing to fight back. Public Radio International’s The World reports:

Enter Patrice Florvilus. After the earthquake, the attorney formed an organization that represents residents of tent camps who’ve been threatened with eviction.

“Our strategy is to stop evictions by making landlords follow the law, which can mean a lengthy legal process. And that’s what the landlord wants to avoid,” Florvilus said.

It doesn’t always work, but a legal defeat can sometimes turn into a de facto victory. In one case, the mayor of Delmas ordered families off government land. A court upheld the eviction order. But then the mayor backed off — locals say because of organized opposition.

But activists have faced many difficulties, including intimidation and jail time. Meena Jagannath reported last month on the case of David Oxygène, an activist who was imprisoned for over two months. He was arrested during one of his group’s weekly protests against the Martelly government calling for improved social policies, including adequate housing.

More recently, a protest organized by camp residents to protest the lack of adequate housing was cancelled following threatening phone calls and other forms of intimidation. GlobalPost reports:

She [Alexis Erkart of Other Worlds] says fear and fatigue run high in the camps, and residents are consistently faced with the prospect of forced evictions, but have nowhere else to go.

Erkert told GlobalPost yesterday via email that yesterday’s protest was being organized by a number of camps, but that “a number of camp residents reported receiving threatening phone calls and thugs coming to the camps telling people not to participate in the protest. There was enough fear that they decided to hold off.”

…

“More and more camps are evicted with no housing plan in place, without viable options for the future,” said Erkert. “They have no access to the government, and limited access to the media. It makes me deeply sad that today they were stripped of one of the only means available to them to make their voices heard.”

Jake Johnston / October 12, 2012

Article Artículo

Economic Growth

Workers

JOLTS and Structural Unemployment

Every month, the Bureau of Labor Statistics conducts the Job Openings and Labor Turnover Survey (JOLTS). The survey asks businesses questions about hirings, firings and layoffs, workers quitting, and the number of job openings they have. This past Wednesday, the BLS released the JOLTS for August. Using data from the JOLTS and unemployment, a ratio of the number of unemployed workers to the number of job openings, called the job seekers ratio, can give an idea of how tight the labor market is. For August, the job seekers ratio is at 3.5, meaning that for every one job opening there are three and a half unemployed workers. While this is a lot better than the high of 6.7 reached in July of 2009, it’s a far cry from the 1.7 ratio averaged from 2005 through 2007.      

Another interesting part of the JOLTS is that it’s broken down by industry. This gives insight into which industries are hiring, and which aren’t. If you’ve paid attention to very serious people – or very, very serious people – you’ve no doubt heard the argument that our unemployment problems are a mismatch between workers’ skills and the jobs of the 21st century. This argument is called “structural unemployment.” If the economy suffers from structural unemployment, government policies to boost spending won’t help. Instead, the unemployed need to get retrained for the jobs that are available. Then the unemployment crisis will disappear. Unfortunately, this story disagrees with the data/reality. 

CEPR and Mark Azic / October 12, 2012

Article Artículo

Economic Growth

Homeownership: Dream or Nightmare?

Politicians have told us for decades that homeownership is the American Dream. They do this because they get lots of contributions from interest groups that have a stake in pushing homeownership: builders, real estate agents, mortgage bankers, and many others who stand to get a share of the spoils. But letting politicians determine our dreams is never good policy.

While homeownership may often provide a good path for secure housing and a route to accumulate wealth for moderate- and middle-income families, it's often not the best option. The reason is very simple: There are large transactions costs associated with homeownership. A person planning to buy a home can expect to pay fees on a mortgage, title insurance, fees for an inspection, an appraisal, a survey, and in many states a transfer tax. These fees can easily come to 3-4 percent of the purchase price of a home.

Homeowners face a similar story on the sell side. The most important cost of selling a home is usually the Realtors’ fee, which is typically 6 percent of the sale price. In total the average round-trip cost of buying and selling a house is likely to be in the neighborhood of 10 percent of the purchase price.

This is a lot of money to throw in the garbage. For a $250,000 house this would imply transactions costs of $25,000. That would be more than two years of rent for a place that rented at $1,000 a month.

Dean Baker / October 12, 2012