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.

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.    

STATE PRODUCT | Few Thrived Under Bush 43

As the Democratic Administration wrestles with huge U.S. economic problems, elected officials can take comfort in the fact that they have an easy act to follow.

The numbers are in, and under Bush 43 only four U.S. states beat the average long-term growth rate.

The four "winner" states that did better than the long-term U.S. per-capita average annual growth rate of 2.5 percent were North Dakota, New York, Louisiana and Montana. (Louisiana wins on a technicality as is explained below.) The other 46 states grew at less than the long-term average growth rate.

The numbers are through 2007, but we know that 2008 was a recession year, so the final numbers by state will be worse.

The state records are on two charts prepared by my friend Professor Jurgen Brauer of the James M. Hull College of Business at Augusta State University in Augusta, Ga. His numbers are from the St. Louis Fed's FRED database, which vacuums population data from the U.S. Census and Gross State Product (GSP) data from the Bureau of Economic Analysis.

With Prof. Brauer's permission I am using his chart showing average annual real growth in per-capita GSP during the first seven Bush 43 years.

Among the top ten losing states, two showed negative annual per-capita GSP real growth during 2001-2007 (2000 being the base year): Michigan and Georgia. The next eight states all had real growth of less than one percent: Indiana, Colorado, South Carolina, Missouri, Ohio, Alaska, Illinois and New Hampshire. Professor Brauer observes:

Two of the bottom five states in real per-capita GSP average annual growth rates switched from “red” to “blue” in the November 2008 presidential elections.

On the upside, the top state in per-capita GSP real growth was North Dakota, with annual growth of about 3.5 percent. The next nine states were all in the 2-3 percent range on per-capita real growth: New York, Louisiana, Montana, Vermont, Oregon, Maryland, South Dakota, Iowa and Alabama. Professor Brauer adds:

Only four states in the nation beat the long-term per-capita average annual growth rate for the United States of 2.5 percent since the late 1920s. Louisiana is an anomaly for its growth is at least partially explained by the exodus of poor residents following Hurricane Katrina so that the improvement in its average growth rate for the remaining residents is a statistical fiction.

Prof. Brauer's second chart shows the state-by-state per-capita value of economic production in 2007.
The top ten states by per-capita GSP in 2007 are Delaware ($56,500 GSP per capita), Connecticut, New York, Massachusetts, New Jersey, Alaska, California, Virginia, Minnesota and Colorado (the District of Columbia is not included).

The bottom ten states are Mississippi (less than $25,000 GSP per capita), West Virginia, Arkansas, Montana, South Carolina, Oklahoma, Alabama, Idaho, Maine and Kentucky.

Should the weak economic performance of the states during the 2001-2007 years be a surprise?

Michael Kinsley, writing in the Washington Post in 2005, concluded that the Democrats did better since 1960 on the Republican ("Daddy"-party) criterion of economic prosperity.

From 1960 to 2005 the GDP in year-2000 dollars rose an average of $165 billion a year under Republican presidents and $212 billon a year under Democrats. Measured from 1989, or measured with a one-year delay, or both, the results are similar. [On the] average annual rise in real per-capita income, Democrats score about 30 percent higher.

Bush 43 did not reverse this weak economic record.

PORT AUTHORITY | Chris Ward Speaks Out

Chris Ward, 53, addressed a breakfast group this morning sponsored by the New York Law School and the Murray Goodgold Foundation. Governor David Paterson appointed Ward Executive Director of the Port Authority of New York & New Jersey earlier this year.

Ward served at the Port Authority under Governor Pataki and was then tapped by Mayor Bloomberg to head up the Department of Environment Protection, where his work was generally praised.

He left the City to work for a private company and then became managing director of the General Contractors Association. His appointment by Gov. Paterson to his $286,702/year Port Authority job is considered nonpolitical.

Ward's talk is focused around four questions: (1) What will the urban machine be that drives jobs and wealth creation in the NYC area over the next 30 years? (2) How does the development of port facilities help? (3) How will a regional rail system help? (4) How will the airport system help?

His biggest eye-opener upon taking the job, he says, is that "$29 billion doesn't buy you very much." The Port Authority must therefore prioritize. He is also looking to the Federal Government to support rail freight projects as they have supported passenger travel via the highway system and Amtrak.

He argues, switching the usual project ownerships, that New Jersey's planning for the ARC tunnel will rejuvenate the NYC railyards, while bringing rail freight access to NYC will help take many trucks off New Jersey's highways.


Ward credits Congressman Jerry Nadler for asking good questions about rail freight in the Congress. Nadler, who is in the audience, in turn praises Ward for the direction he is taking the Port Authority.

With a few pointed words, Ward takes issue with the Bush 43 Administration for understaffing the FAA and trying to promote market-based auction systems instead of addressing the capacity problems of airports in the NYC area and elsewhere. "We need a GPS-based system. The market is not going to solve the airport congestion problem."

In a movie released three weeks ago, I.O.U.S.A., I watched several New Yorkers (Doug Durst, Pete Peterson, David Walker and Robert Rubin) take issue with the string of federal budget deficits under Bush 43, after a sring of budget surpluses during the Clinton years. To my mind the doubling of the official federal debt (in round numbers, from $5 trillion to $10 trillion) is only part of the tragedy.

The two other big parts of the debt tragedy are (1) we borrowed the money overseas, avoiding debate at home about the war and putting power in the hands of our creditors, and (2) how little we have to show for the money we have borrowed.

Think what we could have got for $1 trillion of transportation infrastructure for U.S. ports, airports and rail. Look, as Ward tells us we should, what Dubai is buying now in international connectivity. Compare what we got in Iraq for $1 trillion and many thousands of lost lives.