JOBS | Two Job Numbers for Trump to Beat (Updated Jan. 6, 2017)

Trump visits Obama at the White House. 

It is understood among the cognoscenti that the Democrats managed the economy better for most Americans than the Republicans in the new millennium.

The problem for the Democrats in the 2016 election was voters who switched parties between 2012 and 2016. They were predominantly non-college-educated, from the least-well-educated states.

They picked up on the plain-language appeals and promises of candidate Donald Trump. The Democratic arguments were pitched to their college-educated base.

Perhaps the Democratic appeal to voters should have been based on a smaller number of performance indicators. President-elect Trump has promised to increase jobs. Two broad indicators–as opposed to anecdotal evidence from individual companies–might suffice to measure the success of his administration.

We can even use the BLS November job numbers [Jan. 6, 2017: see below for update, which changes little] for clear and independent benchmarks against which the economic performance of our presidents can properly be measured. The final report on the Obama Administration will be issued on January 6, subject to revision, but the December numbers, based on November reporting (and prior months for their seasonal adjustment), are not likely to change much from November.

Two Key Indicators

Here are the two key long-term numbers against which Obama's economy can be compared with the Bush economy of eight years ago and the Trump economy of two and four years hence:

1. Unemployment =  a rate of 4.6 percent in November

This is arrived at by dividing the number of unemployed, 7.4 million in November, of whom 1.9 million have been unemployed for 27 or more weeks, by the labor force (employed + unemployed), 159.5 million.

This compares with 7.3 percent in December 2004, the last month of the George W. Bush administration. (The numbers are easily found by punching into Google the two words  Unemployment and FRED. This will take you to the super-user-friendly St. Louis Fed database, God bless them.) That is a reduction of 2.7 percentage points. This compares with an increase of 3.4 percentage points during the Bush 43 administration and a decrease of 3.5 percent during the Clinton administration:

• Clinton vs. Bush 43: Better by 3.5 - (-3.4) = 6.9 percentage points.
• Obama vs. Bush 43: Better by 2.7 - (-3.4) = 6.1 percentage points.

2. Employment-population ratio = a rate of 59.7 percent in November.

This number is arrived at by dividing the number of civilian noninstitutional employed, 152.1 million, by the civilian noninstitutional population, 254.5 million.

This number is solid for long-term comparisons because it is not affected by answers to the unemployment survey. The labor force participation rate is dependent on the unemployment rate in the definition of the labor force. The employment-population ratio is not affected by any long-term change in the definitions of the unemployed or in the conduct of the monthly surveys of the labor force.

In December 1992 when President Clinton came to office, the employment-population rate had been falling and was at 61.4 percent. It rose during his administration to 64.3 percent, an increase of 2.9 percentage points. Under G. W. Bush, the rate fell by 3.3 percentage points to 61.0 percent. Under Obama the rate fell further to 59.7 percent, a drop of 1.3 percentage points. So here is the record of this measure:

• Clinton vs. Bush 43: Better by [2.9 - (-3.3)] = 6.2 percentage points.
• Obama vs. Bush 43: Better by [3.3 - 1.3] = 2.0 percentage points.

On both measures, the last two Democratic administrations outperformed the Bush 43 administration, by a lot.

Update, Jan. 6, 2017

Here are the final numbers for November, which arguably should still be the baseline, seasonally adjusted, if the incoming President wants to take credit for changed expectations in December (or his opponents do). Here also are the December seasonally adjusted numbers. Either way, from here on, it is President Donald Trump's baby–TrumpCare, TrumpEconomy and all.

GOP | Shifting Strength, 1928-2012

May 21, 2015–The stakes of the 2016 election are made clear in a Real Clear Politics chart by Sean Trende and David Byler.

It shows changes in party strength based on Federal and state elections–weighting equally the presidency, Senate, House, state governors and state legislatures.

Will GOP Grow in 2016?

The RCP blogpost on Tuesday extends the chart to offer three different scenarios for the outcome of the 2016 Federal elections - win, lose and draw. Their conclusion is that the 2016 election is important.

Some broad principles emerge from the chart:

• Voters tend to move away from the party of the presidency.
• After 1936, the GOP steadily improved its electoral position, with a slight blip in 1944.
• Only three incumbent Presidents widened their party's lead by much: FDR in 1936, Truman in 1948 and LBJ in 1964.
• All were Democrats and they widened their lead by being decisive in a crisis.
• When half-hearted policies don't work, it could be because they were inadequate.
• Political fortunes can change quickly if perceptions are altered by events.
• Voters were disappointed in six GOP presidents: Hoover, Eisenhower, Nixon, Ford, GHW Bush, GW Bush.
• Reagan and Clinton (despite his impeachment) held their own after the first mid-term.
• Voters are fickle, but they care about the economy.

Since I am writing about the financial crisis of 1929-33 and FDR's first Treasury Secretary, one of the three Republicans in FDR's first cabinet (the other two were Ickes and Wallace),  my focus is on the early years of the chart, especially what happened between 1928 - the first election year shown - and 1936.

The peak score of 50 in 1928 dropped down to -119 in 1936–a plunge of 169 index points. This is the largest shift in the electoral winds on the chart. Most of the time (60 percent of the time) the index varies between plus and minus 30 percent.

1912-1928

Why did that huge shift between 1928 to 1932 happen and what lessons does this shift offer for today? I am using as my guide Paul F. Boller, Jr.'s Presidential Campaigns (Oxford University Press, 1996).

Let's start at 1912, when Woodrow Wilson won the presidency because the Republicans were divided between Republican Taft and Bull Moose party leader Teddy Roosevelt. All three candidates were competing for progressive voters. Four years later, the country had shifted to the right and the race was about who could keep the country out of war (it took only till April 2 before Wilson had asked "the Gentlemen of Congress" to declare war). By 1920 the country had moved further to the right, fearful of the Russian Revolution and the League of Nations. Even though Wilson was not on the ballot, the vote was largely against him. The Republicans were confident of winning - and, sure enough, Warren Harding won 60.2 percent of the popular votes against James M Cox; 404 electoral votes to 127.

Harding died of a heart attack in office, and Vice President Calvin Coolidge took the reins. Coolidge ran in 1924 against a Democratic Party that was divided between Eastern voters who were "wet" and Western and Southern voters who were "dry". After a marathon of balloting, the two sides compromised on Wall Street lawyer John W. Davis to oppose Coolidge, who was a shoo-in with 54 percent of the votes.

In 1928, the first year of the RCP chart, Herbert Hoover campaigned on the theme of prosperity and efficiency, and Al Smith was tainted with being from Tammany New York and being Catholic and being a "wet". Hoover won with 58 percent of the vote and a 444-87 majority in the electoral college. However, it was clear that urban voters were growing fast, which meant that being "wet" might mean winning. (A cartoon of the period has Smith after the election calling the Vatican, with the one word comment: "Unpack.")

The Importance of 1929

The 1932 election reversed the 1928 numbers. The lopsided victory this time went to New York Governor Franklin Delano Roosevelt. The country had lost its prosperity and Hoover lost the platform he had stood on four years before. The long-time Treasury Secretary, Andrew W. ("Andy") Mellon came under scrutiny and during the campaign the Democrats developed a capsule summary of the Hoover years:

Mellon pulled the whistle
Hoover rang the bell
Wall Street gave the signal
And the country went to hell.

Mellon resigned in early 1932 as Hoover was impeached. Hoover asked his end-of-term Treasury Secretary, Ogden Mills, to lend him a nickel to buy a soda for a friend, and Mills replied laconically: "Here's a dime. Treat all of them." What had happened, of course, was the Crash of 1929 and the  beginning of the Great Depression. To be fair, Hoover experimented with some public-works initiatives, but they didn't turn the economy around. A clueless Republican convention called for a balanced budget, requiring cuts or tax increases - as did the Democratic convention that followed. (FDR embraced the plan but wisely decided later to ignore it to bring down unemployment). The two leading candidates at the Democratic convention were FDR and former NY Governor Al Smith. FDR's staff spoke privately to the next-leading candidate, John Nance Garner, Speaker of the House, offering him the Vice Presidency in return for his support of FDR; he agreed. FDR was nominated and won with 57.4 per cent of the votes to Hoover's 39.7 percent, with the electoral college splitting 472-59.

Here is a larger version of the chart to help in reading the headings.

Changes in GOP Electoral Strength, 1928-2012, Chart by Sean Trende and David Byler, Real Clear Politics. 

IRISH BONDS | Look Smashing (Updated)

Taoiseach Enda Kenny (L) and British Prime
Minister David Cameron after deadlock.

Irish bonds were issued in the United States by Éire's president in 1919-1920.

Given British Prime Minister David Cameron's hard line on the level of continued aid to Northern Ireland, this idea was recently resurrected.

Cameron is seeking to pressure the Northern Irish Government to make cuts in welfare programs. Taoiseach Enda Kenny and Cameron met to try to resolve their differences and failed to come to an agreement.

Northern Ireland First Minister Peter Robinson and Deputy First Minister Martin McGuinness have criticized the disappointing level of proposed aid from  Britain.

In this environment, one question is: "Are there, realistically, alternative or supplemental sources of funding? What are they?" One idea that worked at the dawn of Éire in 1919-20 is Irish bonds.

1920: Irish Bonds Sold in USA

Éamon de Valera was born October 14, 1882 in New York City and was elected president of the first Dáil from June 1918. He left Ireland from June 1919 to December 1920, leaving behind the leadership of the Irish Republic to Michael Collins. His mission was to sell to Irish-Americans bond certificates in denominations of $10 (nearly $120 in today's dollars) and $25 (nearly $300 in today's dollars).

He was successful, raising $5.5 million ($65 million in 2014 dollars) from American supporters, far more than the Dáil expected.  Of this, $500,000 was reportedly invested in supporting the election of Warren Harding, the winning (Republican) presidential candidate in 1920. Irish Catholics in the United States were still outraged at Democrat Woodrow Wilson's having brought the United States into the Great War on the side of Britain. 

1995: New York City Comptroller Proposes Ireland Peace Bond

Seeking a way to use U.S. economic incentives to bring together Northern Ireland and Éire in peaceful cooperation, Comptroller Hevesi of New York City proposed an Ireland Peace Bond that would gather financing from several governments (U.S., Irish Republic, Northern Ireland and others).

The Peace Bond proposal was put together by a team in the Comptroller's Office. The models for this were both de Valera's 1920 Irish bonds and the successful sale of Israel Bonds to Americans since World War II. The idea behind the Comptroller's Ireland Peace Bond was that it would support an Irish Development Bank to make loans to businesses in Northern Ireland and the border counties in  Éire.

For pension funds to invest in them they would require a U.S. Government guarantee of principal.  The proposal was endorsed by President Bill Clinton but when hostilities resumed in Northern Ireland the idea was scrapped. When hostilities were again ended, the idea for an Ireland Peace Bond was revived by then-Senator Hillary Clinton.

December 2014: The Search for Funding for the Northern Ireland Budget

As mentioned, British Prime Minister Cameron and Taoiseach Kenny left Belfast earlier this month having failed to agree on contentious issues, especially the need for more British support for the Six Counties in the north. Sinn Féin's president Gerry Adams criticized Cameron's financial package, which proposed to replace aid with £1 billion over 5-6 years in the form of 25-year loans with interest, as did SDLP leader Alasdair McDonnell. Northern Ireland's First Minister Robinson and his Deputy McGuinness, speaking at Stormont, were also critical of Cameron's offer.

Irish officials have been looking at options, with their eyes on the success of the Scottish independence movement in promoting devolution. One idea is to imitate de Valera's success a century ago and appeal for funds to Irish Americans.

Comment

I was appointed Chief Economist at the New York City Comptroller's Office under Comptroller Liz Holtzman. When Alan Hevesi was elected I was made part of the team that went to work in 1995 on the Comptroller's plan for an Ireland Peace Bond. Back in 1995, the concept was for a development bank that would invest in business.

In 2014, the concept looks more like a traditional government bond for infrastructure, a "revenue bond" that would build something that would generate rent to pay off the bond. The Northern Ireland budget experts will have to see how this might help their 2015 budget over time. If the bond is not designed and invested well, it will create debt-service obligations that will be hard to keep up with.

What would the advantage of an Irish Peace Bond be over Cameron's 25-year loan proposal? It would depend on the details. The Ireland Peace bond might carry a lower interest rate if Irish Americans viewed buying the bond as an obligation of their heritage. In contemporary terms it could be thought of as crowd-funding for a peaceful and devolving Northern Ireland.

Postscript - Update

Since this was written, the outlines of a package were agreed upon. Britain offered more money, a mix of loans and cash. If the deal stays together, the sale of Irish bonds to Americans would be in addition to, not instead of, financing and aid from London.

CRUZ | Dems Should Give Him an Award

Senator Ted Cruz (R-Texas)

I hereby nominate Senator Ted Cruz (R-Texas) for a Prize for Outstanding Service to the Democratic Party.

Surely he has done more for the Democrats than anyone else alive.

• Would de Blasio be so far ahead of Lhota in New York City's mayoral race without Cruz?
• Would Cory Booker have won his Senate spot so "handily" in New Jersey without Cruz?
• Gallup shows unfavorable view of GOP at all-time high of 62%. It shows favorable view at an all-time low of 28%. We have to thank Ted Cruz.

You may ask: What about Speaker Newt Gingrich in 1995-96? Didn't he help the Democrats just as much by shutting down the government? It was longer then, 27 days (in two parts) vs. 16 days.

Trillion-Dollar Coin

But no. Gingrich only put in play Bill Clinton's budget. By adding in the debt ceiling Cruz has called into question Uncle Sam's constitutional obligation to pay U.S. debts.

Also, Gingrich did not cause such divisiveness in his own party, which should pay continuing dividends to the Democrats. Gallup shows hardly a blip in GOP favorability ratings during that period.

Cruz absolutely deserves the prize. I recommend the award be a facsimile of the Trillion Dollar Coin, which was considered as a way around the debt ceiling. The Treasury would mint it as permitted under FDR's gold legislation of 1933-34 as subsequently interpreted and amended, and the Fed would take it in as an asset, with a trillion-dollar liability to the Treasury per coin.

JOBS | What Keynes Said, What Bush 43 Did

What did Keynes really say? He argued that governments able to run deficits, because they can print money, should run deficits in weak economic times - and run surpluses in good economic times.

What Bush 43 did was run deficits in good (low unemployment) economic times. By putting the winter woodpile in the stove in late summer, he stirred up the anti-deficit forces so that Obama had a hard time getting enough wood together for the stimulus he needed after the crisis of 2008.

This is the central message Paul Krugman has been hammering home in his New York Times column for months or years and in his excellent piece with his wife Robin Wells in the latest July 12 New York Review of Books. The NYRB article reviews the relative roles of Larry Summers, CEA Chair Christina Romer, Timothy Geithner et al. in the Bush 43 response to the financial crises of 2008 and then the Obama response to the spreading economic crisis of 2009.

The "starve the beast" thesis of the Reagan era (cut taxes and create a deficit crisis that will inhibit spending) turned the United States from the largest creditor nation in the world to the largest debtor nation. Under Bush 41 and 43, the Federal Government continued to run deficits even through unemployment was very low by historical standards. Only Bill Clinton, during the Democratic interregnum, ran surpluses. I commented on this in September 2008.

At precisely the point where all the anti-deficit armory was assembled, the financial crisis hit and its size and psychological impact had a huge economic impact on the U.S. and world economy. Just as the anti-deficit forces went to work, the need for stimulative spending suddenly became acute. As Krugman has argued at length, Obama's response fell short because of growing GOP opposition in the Congress. One reason is that state and local government revenues fell with the economic decline (they can't print money) and this offset the national stimulus. So states and localities have been faced with huge deficits in FY09-FY11 and more deficits face most of them in FY12 and FY 13, with no stimulus money left to help.

Now Steve Malanga of the Manhattan Institute castigates states and localities for spending too much in good times and not putting away money for bad times. He quotes Keynes. He tells us he asked then-Mayor Koch to put money into a rainy-day fund. Koch correctly responded that elected officials find this difficult to do. So far, rainy-day funds tend to be spent at the first hint of dewfall.

Here are my comments:
1. Keynes was focused on the national level.  Counter-cyclical fiscal and monetary policy is meant to be applied at the money-printing level. States and localities just don't have that power. When Greece and Spain gave up the drachma and peseta, they gave up their ability to pursue a counter-cyclical policy for very long - that power has gone to the European Union and the European Central Bank.
2. States and localities have to balance their budgets.  Balanced budgets are the law in many states and it's reality in the rest of them. When states and localities talk about deficits they are talking about gaps that must be faced. These gaps must be closed through borrowing or other gap-closing measures.
3. Some counter-cyclical mechanisms work well. Revenue-sharing with states and localities was a good idea. New York City's averaging of assessed values over five years is a hugely successful mechanism that evens out property-tax revenues over the business  cycle.