Posts Tagged ‘ recession ’

Where Americans Can Cut Back

Tuesday, August 9th, 2011
Michael Mandel



Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

Dollar billWhere can Americans cut back if the economy slips back into recession again?  After all the talk about the “new frugality” and the deepest recession in 75 years, it might seem like households have tightened their belts as much as possible.

Surprisingly, however,  the economic figures show several key areas where Americans have actually increased consumption compared to 2006, the year when housing prices peaked.  Judge for yourself whether we can cut back more or not.   (Note: all consumption changes are measured in inflation-adjusted 2005 dollars, comparing the 2nd quarter of 2011 with the second quarter of 2006)

1. Clothing — Consumption: + 8.9% since 2006

Despite the economic weakness,  Americans spent on clothing at an almost $350 billon annual rate in the second quarter of 2011. Nothing seems to stop the waves of inexpensive shirts, dresses, and coats  coming from overseas.  Clothing imports from China, especially, are up 37 percent since 2006, and Americans are snapping them up.  Perhaps we could buy a a few less t-shirts with funny sayings on them?

2. Personal care products — Consumption: +14.4% since 2006

We like to look our best, even in a recession. Perfume, makeup, shampoo,  shaving cream and razors, body gels–Americans spend about $100 billion a year on these personal care items.  Not only that, we’re spending more on imported cosmetics,  which are up 26 percent since 2006.  Are all those goos and gels  really necessary?

3. Televisions — Consumption: +287.4% since 2006

No, that’s not a misprint.  The government adjusts for the size of the television, among other things, and the average size screen has soared since 2006.   If we don’t adjust for size and other variables,  Americans are spending 12.7% more on televisions today compared to 2006.  Total personal consumption outlays on televisions, according to the BEA: About $40 billion, pretty much all imported.  Do you really need an even bigger TV?

4. Alcoholic Beverages (off-premises) — Consumption: +10.7% since 2006

Perhaps it’s not surprising that Americans need an extra drink these days. Still, the total home spending on alcoholic beverages is about $110 billion, at annual rates, according to the Bureau of Economic Analysis. A few less glasses might put a few extra dollars in the pocket.

Remember, all these figures apply to Americans in the aggregate. Those people who have been out of work for months or years don’t have room to cut back at all.

And remember–when journalists write that “consumer spending is 70 percent of economic activity,” they are completely wrong. What the U.S. economy needs is more production, not more consumption–and in a globalized economy, the two are not synonymous at all. And that, my friends, will be the subject of tomorrow’s post.

Photo credit: iChaz.

The Democrats’ Challenge to Winning Back the House, Pt. 1: Manufacturing, Race, and Education

Tuesday, December 14th, 2010
Lee Drutman



Lee Drutman is a senior fellow and the managing editor for the Progressive Policy Institute.

by Lee Drutman

As Democrats shift from licking their wounds to figuring out how to win back the House in 2012, the obvious question is: what will it take? Or at least, what will it take besides the obvious triumvirate of a solidly recovering economy, a healthy dose of Republican overreach, and a bit of luck?

Over the next several weeks, I’m going to be taking a closer look at the 66 seats (net 63) that Democrats lost, asking some questions about the character of these lost districts with the goal of putting a finer point on what Democrats need to pay attention to in order to get those seats back. In this post, I’m going to focus on the role of manufacturing, race, and education.

But first a quick look at the map: Democrats lost seats all over the country: 23 in the South, 20 in the Midwest, 15 in the Northeast, and eight in the West.

Seats Democrats Lost, 2010

The bulk of post-election commentary has blamed the losses on the fact that the incumbent party almost always loses seats in a mid-term election and the fact that Democrats were being blamed for a bad economy.

But yet California, where unemployment is 12.4 percent, did not yield a single Republican pick-up (though California is famous for having very safe districts, so this may not be a fair test.). In Oregon, where unemployment is 10.5 percent, Democrats held the five (out of six) seats they maintain.

MANUFACTURING

One industry that has been hit particularly hard in the recession is manufacturing. Of course, the decline in manufacturing has been going on for a long time. In 1950, roughly three in ten U.S. employees worked in manufacturing. Today manufacturing jobs account for just 8.9 percent of U.S. nonfarm jobs. In the 2000s, manufacturing lost roughly one-third of its jobs, falling from 17.3 million people to 11.6 million people.

In most cases, these are jobs that are not coming back, leaving communities that depended on them demoralized and angry. How much of a factor was this in the 2010 elections?

Across the 66 Republican pick-up districts, manufacturing accounts for, on average, 11.9 percent of the jobs. That’s three full percentage points higher than the national average of 8.9 percent. In roughly three quarters (73 percent) of the districts Democrats lost, manufacturing accounted for more than the national average of 8.9 percent of the jobs.

Not surprisingly, this was most pronounced in the Midwest, where the 21 districts Republicans picked up averaged 14.4 percent of manufacturing jobs as a share of total non-farm employment. But it was also pronounced in the Northeast and the South. In both regions, manufacturing accounted for 11 percent of the jobs in the districts Democrats lost, two points above the national average. Only in the West did the districts the Democrats lost have less manufacturing than the national average, averaging only 6.9 percent of the economy. This was the region in which Democrats lost fewest seats – only nine.

Manufacturing Jobs as Share of Total Jobs
Entire U.S. 8.9%
ALL GOP Pick-Up Districts (average) 11.9%
Midwest GOP Pick-Up Districts (average) 14.4%
South GOP Pick-Up Districts (average) 11.0%
Northeast GOP Pick-Up Districts (average) 11.0%
West GOP Pick-Up Districts (average) 6.9%

To understand the potential importance of declining manufacturing as a key to the Democrats’ losses, consider Pennsylvania’s 11th District, which includes Scranton and Wilkes-Barre. Democrat Paul Kanjorski had held the seat since 1985, but was ousted by Lou Barletta by a 55-to-45 percent margin. The district gave Obama 57 percent of its vote, and was one of only nine Republican pick-up districts that voted for Kerry. Manufacturing accounts for 16.9 percent of jobs in the district.

Or Wisconsin’s 7th District (northwest and Central Wisconsin), where Republicans picked up a seat formerly held by long-time incumbent David Obey, and a district both Obama and Kerry carried as well. Manufacturing accounts for 17 percent of the jobs in the district.  Likewise with the 17st District of Illinois (northwest Illinois) – held by a Democrat since 1983, went for both Kerry and Obama, and 14.3 percent of its jobs come from manufacturing.

EDUCATION AND RACE

Democrats also have a problem with non-college educated whites. This has been a long-standing challenge for Democrats. Many of these voters feel frustrated and left behind by economic changes related to the loss of manufacturing jobs and global competition. They don’t see Democrats as helping them out. They wonder why they can’t seem to get ahead, and they want answers and somebody to blame.

Democrats have not enjoyed parity with Republicans among white voters in 20 years (since Bill Clinton), but 2010 was especially bad, with white voters breaking 62-to-38 for Republicans in the mid-term elections.

This shows up in the districts that Democrats lost. The U.S. population is 65.9 percent white. The average Republic pick-up district was 76.8 percent white. In the Northeast, the average Republican pick-up district was 86.5 percent white, and in the Midwest, the average Republican pick-up district was 81.5 percent white.  Overall, 82 percent of the Republican pick-up districts have white populations greater than the national average.

Pct. White
Entire U.S. 65.9%
ALL GOP Pick-Up Districts (average) 76.8%
Midwest GOP Pick-Up Districts (average) 81.5%
South GOP Pick-Up Districts (average) 68.8%
Northeast GOP Pick-Up Districts (average) 86.5%
West GOP Pick-Up Districts (average) 70.3%

A decent number of these whites are blue-collar workers, we should note that those without bachelors’ degrees who have been hit much harder in this recession (unemployment among those with college degrees is only 5.1 percent). In the 2010 elections, Republicans won among both voters with only a high school diploma (54-46 percent) and those with some college (56-41 percent) after Democrats won both categories in 2008.

In the United States, 27.4 percent of adults have at least a bachelor’s degree. But the Republican pick-up districts are on average, less well-educated. Only 24.1 percent of adults have a bachelor’s degree. The gap was greater in the districts Dems lost in the South, where only 20.8 percent were college-educated, and the Midwest, where only 23 percent were college-educated. Overall, 71 percent of the Republican pick-up districts have fewer adults with bachelors’ degrees than the national average

Pct. of Individuals With a Bachelor’s Degree
Entire U.S. 27.4%
ALL GOP Pick-Up Districts (average) 24.1%
Midwest GOP Pick-Up Districts (average) 23.0%
South GOP Pick-Up Districts (average) 20.8%
Northeast GOP Pick-Up Districts (average) 29.2%
West GOP Pick-Up Districts (average) 26.0%

One of the most poorly educated districts is the 18th District of Ohio (Eastern Ohio), where only 12.5 percent of adults are college educated. It had been a solid Democratic seat for 46 years until Republican Bob Ney won it in 1994. Ney resigned in 2006 and shortly thereafter wound up in prison on conspiracy charges. Zachary Space won solidly in 2006 and 2008 with more than 60 percent of the votes, but dropped 20 points this time around. It is also a high manufacturing district (17.4 percent of jobs come from manufacturing), and very white (96.3 percent)

Another poorly educated district is the 1st (and only) District of South Dakota. Just 15.1 percent of South Dakotans have a bachelor’s degree. And despite one of the lowest unemployment rates in the country (Just 4.5 percent), they voted out three-term incumbent Stephanie Herseth Sandlin, who had won easily in the last two elections, garnering 68 and 69 percent of the vote. South Dakota is 88.7 percent white.

Obama’s problems among white, non college-educated voters are well-known, but these are both districts that Obama yet still went Democratic for the Congressional seat. That these voters have now lost faith in the ability of a Democrat to represent them in Congress, and in a rather remarkable way (both of these districts, for example, reduced their Democratic vote share by 20 percent in just two years) speaks volumes of the problems Democrats are having with non-college educated voters.

TAKEAWAYS

This analysis echoes others that point to the fact that Democrats are struggling among white working-class voters, many of whom had voted Democrat in the past, it adds a new way of parsing the data.

For all Democrats’ talk about helping working class folk, they have not done much for those who have lost blue collar jobs other than extend unemployment benefits. This does little to assure those upset by the pervasive sense of decline and who want somebody to blame for their increasing feelings of powerlessness.

As Steven Pearlstein wrote shortly after the election, “For the president and his party, regaining the confidence of the industrial Midwest is now a political imperative. For the U.S. economy, its no less an imperative to find a way to revive the Rust Belt.” Democrats have thus far only paid lip service to this with their “Make it in America” initiative, which appears to be mostly an apparently failed attempt at messaging as far as I can tell.

The problem for these districts is that the Democrats can’t rely solely on a generally improving economy to bring back manufacturing. These are places where there is a real sense of decline, and where voters are surely feeling incredibly frustrated that Democrats really haven’t done much to help them. If Obama and the Democrats want these beleaguered voters to give the Democrats another chance, they’re going to need to show them that they are serious about investing in America again.

Certainly, making inroads with the white working class voters is not the only way that Democrats can win back the House. There are other paths to 218. But without making at least a few inroads in key swing districts, the Democrats will have a lot less room for error in any other strategic approach.

Why Some States are “New Economy” States

Wednesday, November 24th, 2010
Scott Andes



Scott M. Andes is a research analyst at the Information Technology and Innovation Foundation.

by Scott Andes

When it comes to innovation-based growth, not all states are equal. Certain states are on the front lines, and are accordingly most likely to lead the way to economic recovery. According to a new report from the Information Technology and Innovation Foundation, the most leading New Economy states all excel at supporting a knowledge infrastructure, spurring innovation, and encouraging entrepreneurship.

The new report, The 2010 State New Economy Index, uses 26 indicators to assess states’ fundamental capacity to successfully navigate economic change. It measures the extent to which state economies are knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based – in other words, the degree to which state economies’ structures and operations match the ideal structure of the New Economy.  Indicators include percent of the population online, fastest growing firms, exports, industry and state R&D among others.

The top five states – Massachusetts, Washington, Maryland, New Jersey, and Connecticut —are at the forefront of the nation’s movement toward a global, innovation-based economy.  Massachusetts has been the top ranked state in all iterations of the report (1999, 2002, 2007 and 2008). The Bay State boasts a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard in the Route 128 region around Boston. It survived the early 2000s downturn and was less hard hit than the nation as a whole in the last recession. And it has continued to thrive, enjoying the fourth-highest increase in per-capita income. Washington State  (which ranked fourth in 2007 and second in 2008) scores high due not only to its strength in software (in no small part due to Microsoft) and aviation (Boeing), but also because Puget Sound region has emerged as entrepreneurial hotbed.

Maryland remains third (as it was in 2007 and 2008, as well), in part because of the high concentration of knowledge workers, many employed in the District of Columbia suburbs and many in federal laboratory facilities or companies related to them.  These and the other top ten New Economy states (New Jersey, Connecticut, Delaware, California, Virginia, Colorado, and New York) have more in common than just high-tech firms. They also tend to have a high concentration of managers, professionals, and college educated residents working in “knowledge jobs” (jobs that require at least a two-year degree). With one or two exceptions, their manufacturers tend to be more geared toward global markets, both in terms of export orientation and the amount of foreign direct investment.

All the top ten states also show above-average levels of entrepreneurship, even though some, like Massachusetts and Connecticut, are not growing rapidly in employment.  Most are at the forefront of the IT revolution, with a large share of their institutions and residents embracing the digital economy. In fact, the variable that is more closely correlated with a high overall ranking is jobs in IT occupations outside the IT industry itself. Most have a solid “innovation infrastructure” that fosters and supports technological innovation. Many have high levels of domestic and foreign immigration of highly mobile, highly skilled knowledge workers seeking good employment opportunities coupled with a good quality of life.

The two states whose economies have lagged most in making the transition to the New Economy are Mississippi and West Virginia. Other states with low scores include, in reverse order, Arkansas, Alabama, Wyoming, South Dakota, Kentucky, Louisiana, and Oklahoma. Historically, the economies of many of these and other Southern and Plains states depended on natural resources or on mass production manufacturing, and relied on low labor costs rather than innovative capacity, to gain advantage. But innovative capacity (derived through universities, R&D investments, scientists and engineers, and entrepreneurial drive) is increasingly what drives competitive success.

While lower ranking states face challenges, they also can take advantage of new opportunities. The IT revolution gives companies and individuals more geographical freedom, making it easier for businesses to relocate, or start up and grow in less densely populated states farther away from existing agglomerations of industry and commerce. Moreover, notwithstanding the recent decline in housing prices, metropolitan areas in many of the top states suffer from high costs (largely due to high land and housing costs) and near gridlock on their roads. Both factors may make locating in less-congested metros, many in lower ranking states, more attractive, particularly if their metropolitan areas offer high-quality schools, high-quality and efficient government, and a robust infrastructure.

Perhaps the most distinctive feature of the New Economy is its relentless levels of structural economic change.  The challenges facing states in a few years could well be different than the challenges today.  But notwithstanding this, the keys to success in the new economy now and into the future appear clear:  supporting a knowledge infrastructure (world class education and training); spurring innovation (indirectly through universities and directly by helping companies); and encouraging entrepreneurship.  In the past decade a new practice of economic development focused on these three building blocks has emerged, at least at the level of best practice, if not at the level of widespread practice.  The challenge for states will be to adopt and deepen these best practices and continue to generate new economy policy innovations and drive the kinds of institutional changes needed to implement them.

photo credit: Chantal Wagner

The Geography – and Demography – of Defeat

Friday, November 5th, 2010
Will Marshall



Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

To fully appreciate the scope of the Republicans’ midterm victory – and the nature of the Democrats’ political predicament – look at the map.

In Congressional contests, Democrats flipped just three House seats across the whole, wide country, and they were in the traditionally blue bastions of Delaware, Hawaii, and New Orleans. They won two open Senate seats (in Delaware and Connecticut) but those have been held by Democrats for decades.

Republicans advanced everywhere except the West Coast, where they picked up just one House seat in Washington state. Their gains were mostly concentrated in the Midwest rustbelt and the upper South. With the exception of black belt regions of the South, Latino-dominated south Texas, a smattering of blue in Iowa, Wisconsin and Minnesota, and a few Rocky Mountain districts, America’s vast interior is solidly red.

The West Coast (including Hawaii) and New York/New England (excepting New Hampshire) are the only remaining Democratic strongholds. The geography of defeat lends credence to GOP claims to represent the American heartland against bicoastal elites.

Republicans also won a passel of governorships and state legislatures across the Midwest. Democrats, in short, got slaughtered in working class America.

Republicans won working-class whites by a crushing, 63 to 34 percent margin. “They have taken the brunt of this recession, particularly the men, but Obama looked as if he was not engaged with it,” pollster Stan Greenberg told the National Journal. “Health care created a sense that he was not focused on the jobs issues and economic issues, and they were very angry.”

The Journal’s Ron Brownstein notes that, “In all, 47 House Democratic losses so far have come in districts in which the level of white college attainment lags the national average; just 16 came in districts that exceed that average. Talk about blue-collar blues.”

But in fact Democrats badly underperformed with white voters in general. College-educated whites also backed GOP candidates, by 58 to 40 percent. Where Democrats held onto their seats, they ran closer to even among college-educated white women while rolling up huge margins among minorities.

Nonetheless, the political map sends Democrats an unmistakable message: you are not connecting with ordinary working Americans. This is only in part a reflection of the current economic crisis, and the evident failure of President Obama’s policies to spur recovery. After all, blue collar whites have been alienated from Democrats for a generation. That should be a source of constant embarrassment to the party of the people.

Many liberal commentators, echoing Thomas Frank, have argued that blue collar voters’ antipathy to Democrats reflects their cultural conservatism.  GOP demagoguery on “values” has blinded these voters to the reality that Democrats are on their side on economic issues. But the conspicuous absence of “God, guns, and gays” from the 2010 elections actually make them a pretty good test of this proposition.  This time, there’s no question that blue collar voters rejected Democrats on economics rather than values.

All this underscores President Obama’s core challenge: crafting a credible plan for rebuilding America’s productive base. This isn’t a cyclical challenge; it’s not a matter of more public spending to boost demand. It’s a structural challenge which requires modernizing U.S. infrastructure, removing obstacles to entrepreneurship and innovation, seizing leadership in clean energy, and revamping tax and regulatory policies to promote economic growth.

Incredibly, however, some liberals are contemplating a blizzard of new federal regulations with the purported aim of putting Democrats on the side of the middle class by demonizing Wall Street banks and big business. The last thing blue collar Americans need is an economic morality play in which they are cast as victims. What they need, and what progressives owe them, is not a condescending populism, but a practical plan for economic success.

Economy is the Problem, Not Obama

Tuesday, November 2nd, 2010
Will Marshall



Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

The punditocracy apparently cannot resist the tendency to personalize political trends and developments.  It has turned the midterm election into a political melodrama starring Barack Obama as the redeemer-President who inspired such soaring hopes in 2008, yet unaccountably failed to transform America in his first two years.

The saga of Obama agonistes may be more interesting, but public angst about the economy is what is really driving today’s election.

Sure, the president’s approval ratings are down (though not as low as Ronald Reagan’s or Bill Clinton’s at the same juncture). The public believes that the administration’s policies have failed to revive the economy, even while plunging the nation deeper in debt and, in the case of health care, expanding government’s reach.

But if unemployment were, at say, seven percent and trending downward, voters probably would see things in a more optimistic light. What’s oppressing the electorate is not the specter of big government, it’s the hangover from the 2007-2009 economic crisis, the worst to hit America since the Great Depression.

It’s not just lingering unemployment (9.6 percent). Americans lost roughly $11 trillion in net worth in those years, including about $4 trillion in home equity.  Though stock prices rebounded somewhat, foreclosures continue apace and sales of new homes are at a 50-year low. Hammered by this “negative wealth effect,” U.S. households are shedding debt instead of spending, which depresses economic demand.

Our big banks still carry hundreds of billions of troubled loans on their books, and small businesses still have difficulty getting loans. U.S. businesses are keeping payrolls lean to cut costs, while sitting on nearly $2 trillion in retained earnings.

The federal government, meanwhile, seems to have exhausted the usual countercyclical remedies. With the national debt swelling rapidly, there’s little appetite in Washington for another dollop of stimulative spending (and will be even less if Republicans take over the House). The Federal Reserve says it’s ready for another round of “quantitative easing” – aka, printing money – but interest rates are already near zero.

The truth is, an economic downturn triggered by a financial crisis is much deeper and prolonged than an ordinary recession. No wonder voters are in a sour mood. They are lashing out at the party in power because the real culprits – the Republicans who were asleep at the switch as the housing and financial bubbles formed – aren’t around anymore to catch the blame. That’s not fair, but politics seldom is.

And while conventional wisdom pillories Obama for pushing health care or financial regulatory reform rather than spending every waking hour focusing obsessively on jobs, it’s not clear that would have made much of a difference.

The supposedly awesome powers of the presidency don’t include any magic levers for creating private sector jobs or dramatically speeding up recovery.  In 1982, unemployment was even higher – 10.4 percent – on Election Day. Rather than promise instant relief, Reagan said the pain was necessary to wring inflation out of the economy and lay a stronger foundation for future growth.  He urged Americans to “stay the course” and ride out the downturn.  Republicans lost 26 House seats that year, but the economy eventually sprang back to life and propelled Reagan to a thumping reelection.

So Obama is right to stay calm, rather than running around the country trying to do something that doesn’t come naturally to him – emoting and feeling peoples’ pain. Instead, he should be crafting a new and more compelling economic narrative focused on unleashing American entrepreneurship and innovation.  Forget Paul Krugman; Obama’s challenge is not to press for more stimulus or whine about economic inequality or posture as an anti-business populist, it’s to propose structural changes that will assure a broader, more robust economic recovery. These include an infrastructure bank, a new clean energy roadmap, pro-growth regulatory and tax reform (including corporate taxes), and a credible plan to restore fiscal stability once the economy regains strength.

Such a plan also is the best way to assure Democrats’ political recovery from the drubbing they will take today.

Comparing Employment Changes During Recessions

Monday, August 2nd, 2010
Scott Winship



Scott Winship is research manager of the Pew Economic Mobility Project and a recent graduate of Harvard's doctoral program in social policy. The views he expresses do not represent those of Pew.

by Scott Winship

I keep seeing that chart that shows how employment declines in the current recession are so much worse than in past ones. You know, this one:

On many dimensions, of course, the current recession is much worse, but this chart has always seemed funny to me. And after reading Paul Krugman mock the idea that the recessions of the 1970s and 1980s were at all comparable, I decided to make my own damn chart. Because the above chart looks at employment levels, which are affected by labor force growth, I decided to look at employment rates instead (subtracting the unemployment rate for each month from 100). Because the composition of the labor force has also changed over time (lots more married women, most notably), I decided to confine to white men ages 20 and up. And because it’s unclear to me what “peak” is used in this chart (see the vague note at the bottom of Rampell’s chart) and since the relationship of the NBER business cycle peak to the unemployment rate involves a lag, I decided to measure from the peak employment level. Got all that? Here’s my chart:

I’ve labeled the lines the same way that Rampell’s chart is labeled, by the recessions that followed each employment rate peak. The figures are from BLS and are based on their seasonally adjusted series.

This approach makes clear why people were disappointed by the “jobless” recoveries from the recessions of the early 1990s and 2000s, which were no faster than after the much more severe recession of the early 1970s (though of course, the declines in employment were much smaller to begin with). More to the point, it also shows that while the current recession still looks bad, bad, bad, the decline in employment is comparable to the decline during the double-dip recession, which is apparent from the “1980″ line. That’s not the most fantastic news of course, but it’s worth noting. Unfortunately, I doubt this is the chart you’ll see others use and update as things evolve in the next few months.

This item is cross-posted at ScottWinshipWeb.