The Scouting Report Web Chat: Jobs and the Economy

While recovery in the American job market remains slow in the wake of the Great Recession, there are some encouraging signs suggesting that better times are ahead. Brookings Senior Fellow Gary Burtless follows the monthly employment reports and explains the trends to watch behind the numbers. A nearly $18 billion jobs bills that has passed Congress would create new jobs, extend aid to the unemployed and offer tax breaks to businesses that hire.

On Wednesday, March 17, Gary Burtless discussed the jobs legislation and proposals for financial regulation during a live web chat. POLITICO senior editor David Mark moderated the discussion.

The transcript of this chat follows.

12:28 David Mark: Welcome, Gary. Jobs and the economy is a subject on lot of minds. Welcome to the chat.

12:28 Gary Burtless: Hi, David. Thanks for having me.

12:28 [Comment From Laurie: ] What is the unemployment picture in the U.S. today? How many people are out of work?

12:29 Gary Burtless: The unemployment rate is currently 9.7%. That rate is almost a half point lower than the 10.1% unemployment rate we saw in October, when the peak unemployment rate was reached.

12:29 Gary Burtless: Almost 15 million people are jobless and looking for jobs. That’s bad, but it represents a drop in the number of unemployed last October, when there were 15.6 million without work.

12:29 [Comment From Joseph: ] Where do you see unemployment trends heading?

12:30 Gary Burtless: The unemployment rate reached a peak in October of last year, and it is falling already according to the household survey.

12:32 Gary Burtless: I expect that unemployment will continue to decline, but I am not a forecaster. The general view among forecasters is that employment will rise slowly and the unemployment rate will still be above 9% or 8-1/2% early next year. That seems like a reasonable guess to me.

12:32 [Comment From Karl Knapstein: ] It looks to me that our federal government has wasted $1 trillion on a false stimulus package. I think some sort of block grants to the states would work better. Your thoughts?

12:34 Gary Burtless: Your view that the stimulus has been “wasted” is a common one, but I think it’s incorrect. First, about 45% of the 2009 stimulus consisted of a tax cut. If someone wasted those dollars it is the households which received them (that is, you and me).

12:36 Gary Burtless: Second, a large slice of the stimulus was spent on unemployment benefits and subsidies so laid off workers can continue to receive health insurance coverage. I think few of those people would agree with you they “wasted” those extra benefits.

12:38 Gary Burtless: And third, most of the remaining money was spent on fiscal relief to state governments. The money allowed them to pay for Medicaid, K-12 schooling, and publicly supported higher education. It allowed them to keep more state and local employees — teachers, police, fire fighters, librarians — on their payrolls. And it permitted them to raise taxes less than they otherwise would have been forced to do.

12:38 David Mark: The D.C./Maryland/Virginia region is in reasonably decent shape in terms of unemployment, as are Texas and North Dakota. Why are states like Michigan, Rhode Island and others hurting so bad?

12:40 Gary Burtless: There are two broad reasons that regions have been particularly hard hit by this recession. First, there was a building boom — especially for new houses and condos — in some parts of the country (Arizona, So. California, Florida, Las Vegas). When the boom stopped, many the people employed in construction and financing and selling of new homes and commercial buildings were let go.

12:42 Gary Burtless: Second, manufacturing — especially of capital goods and consumer durable products — has been very hard hit by the recession. Businesses do not want (or cannot afford) to expand; households do not want to take the risk of buying expensive new appliances (or cannot get the credit to finance those purchases). This hurts every part of the country where manufacturing is important — Michigan and Ohio and the midwest more generally.

12:43 [Comment From Kenneth: ] Why are there no programs like the WPA? If we learned anything from the Great Depression, I thought it was that we needed to directly create jobs! And, I feel like we’d be building better things than highways in the middle of nowhere.

12:45 Gary Burtless: This is a good question, and there are two parts to a good answer to it. The first answer is that Congress and the Administration have learned some things about how to deal with a recession. One lesson is that the programs to deal with it should be targeted, timely, and defensible. WPA-style projects may or may not be targeted and defensible, but experience suggests they are only rarely timely.

12:47 Gary Burtless: That is because it takes a while to select good projects out of a list that may contain dubious projects; it takes a while to select the contractor in an honest and transparent way; it takes a while for the contractor to design and hire workers and sub-contractors to perform the project. By the time there are lots of people working on the project, the country may be out of the recession.

12:48 Gary Burtless: As it happens, I think this recession may be a long one, so Congress and Administration should have worried a lot less about whether the projects were “timely”. (We’ll probably have high unemployment for a number of years.)

12:50 Gary Burtless: The second objection to WPA-style projects is that many people think the money spent on them will go to politically well-connected projects rather than to projects with a high ratio of benefits to costs. Congress people know this, so they focused the stimulus spending on items that can easily be defended — aid to state governments, help for the unemployed, tax cuts for everyone.

12:50 [Comment From Marcus: ] What exactly will the jobs bill that passed the Senate today accomplish, and is Obama likely to sign it?

12:50 [Comment From Daniel: ] Did the bill that passed today extend unemployment benefits for the long-term unemployed? If so, are there any particular requirements someone must meet to get this extension?

12:53 Gary Burtless: These two questions are closely related, so let me deal with them in the same answer. I believe the bill that passed the Senate today is a very modest one ($15 billion over the next couple of years, in an economy that produces nearly $15 trillion — that’s TRILLION — a year). Most of the funds are aimed at creating an incentive so business will want to add to their payrolls this year.

12:54 Gary Burtless: The incentive is pretty modest, and it’s unlikely to spur much extra hiring. I think the Administration actually proposed a hiring incentive that was likely to do a better job, but the Congress decided to adopt a plan proposed by Senators Schumer and Hatch. Still, the President will sign this bill.

12:57 Gary Burtless: Judging by the price tag of the bill, I don’t think it contains a major extension in unemployment benefits, although the House has passed and the Senate is considering a major extension. Essentially, I think those proposals will simply continue the unemployment insurance extensions we had on the books at the end of 2009, but provide funding through September or possibly December 2010. I don’t think there are any special qualifying requirements, except that workers exhaust their regular unemployment benefits.

12:58 [Comment From Daniel K.: ] What does unemployment look like in “normal” times? What should the unemployment rate be in a healthy economy?

12:59 Gary Burtless: In 2006 and 2007, when we were close to full employment, the unemployment rate ranged between 4.5% and 5.0%. In the late 1990s, at the tail end of an exceptionally long boom, it was close to 4%. I think most of us would be happy to see the unemployment rate drop down below 5% again, but economists (including me) do not think we’ll see that happen in the next three years. At any rate, a “normal” (that is, “full employment”) unemployment rate is probably around 4.5%.

12:59 [Comment From Karl Knapstein: ] Gary, I got $40 a week. I could of put the total to better use. It was a scam to create consumption , a waste. The same with my unemployment $40 It did not help, I am still broke and now my brother’s children have to pay it back.

1:02 Gary Burtless: It is hard to know how to answer this question. $40 a week in extra income has different impacts on people, depending on their other resources. A very wealthy person is unlikely to notice it, and his or her spending patterns will be very little affected. However, a person who has been unemployed for several months would find the extra income much more welcome, and would probably spend much of it very quickly, possibly for basic necessities, such as the monthly rent or mortgage payment, healthy food, or school supplies for the kids.

1:05 Gary Burtless: I do not know your situation, Karl, but many of the unemployed do not think an additional $40 a week would be wasted if it were spent to help support their standard of living in a very difficult period. The logic of the extra help is, first, that it provides help to a deserving population and, second, that this population will spend the money rapidly, providing jobs to the people who work in supermarkets, supply stores, and other companies that depend on household consumption to support themselves.

1:05 [Comment From Sue: ] unemployment is near 20% in California, with a government that is bankrupt. I noticed that the stimulus bill $$ is going to California in terms of billions – to 1) keep government jobs at its peak level, 2) to keep government entitlements at its peak. There is little multiplier to government jobs. Why not cut back on government spending, both at the state level of those states suffering near default like California, Illinois or New York. Can you deny the leadership of these states are in error, shown by their failure to understand fiscal and monetary policy?

1:07 Gary Burtless: I certainly agree with you that there are serious governance problems in many of our states, including both California and New York. The question is, would the economic situation of Californians and New Yorkers be better or worse if the federal government provided them less assistance in the current deep recession?

1:11 Gary Burtless: I’m inclined to think Californians and New Yorkers are economically better off because of the federal assistance than they would be without it. California’s schools and public institutions of higher education would face much bigger budget cuts — forcing bigger classes, fewer courses, and less generous support services for school children and college students. Law enforcement and fire protection would be less well provided. Social assistance and medical benefits to the indigent would be stingier. I don’t see how that makes the situations of California and New York taxpayers or businesses any better. And I can think of a dozen reasons to think their situations would be worse.

1:11 [Comment From Mark, Greenbelt: ] I have heard the argument that extending unemployment benefits defeats the purpose of the program, that people give up and stop looking for work. Is extending UI good for employees? For the economy?

1:14 Gary Burtless: I think it is accurate to say that more generous or longer lasting unemployment benefits reduces the incentive of some unemployed to look hard for a job or to accept a bad job if one were offered. Four decades of statistical research tends to confirm this common-sense proposition. However, in good times one of the goals of unemployment insurance is to help laid-off workers find better jobs than the ones they would be forced to take if they did not have any income protection.

1:16 Gary Burtless: The idea is that workers ought not take the first job or even the second job that is offered to them if accepting the job would result in a big cut in pay (and a big reduction in the utilization of their skills). Thus, in part we have created this program so that laid-off workers can look longer and harder to find the right job, not the first job that comes along.

1:18 Gary Burtless: In a deep recession there is another strong argument for unemployment benefits, and even for increases in benefit duration: The extra consumer spending of the unemployed (made possible by unemployment benefits) helps maintain overall demand for goods and services. If laid off people had to cut their consumption to match the drop in their weekly wages, the fall-off in demand would be much steeper than it is with unemployment insurance protection. That helps the rest of us … or at least those who supply goods and services to the folks who are laid off.

1:19 [Comment From Sally: ] It seems to me that we need short term action but also a long term economic plan. Do you agree? And how should we think about job creation in a post-recession world?

1:24 Gary Burtless: I agree with you, and I think Members of Congress and economic policymakers in the Administration do, too. My view is that the short-term economic situation demanded many of the steps taken by Congress and the Administration, even though some of the steps are currently pretty unpopular. The biggest surprise to me is the political unpopularity of the 2009 stimulus package. A majority of Americans now say they believe half or more of the stimulus dollars were “wasted.” What can this mean? An overwhelming percentage of the dollars were spent to help shore up Americans’ incomes, especially the incomes of laid-off workers. The next biggest slice was used to help keep state governments from cutting spending or raising taxes as much as they would have been forced to do without federal assistance.

1:27 Gary Burtless: But there is no doubt that the most unpopular part of the federal government’s reaction to the crisis is its handling of the major financial institutions that faced insolvency. This reaction has meant that some of the people who profited from bad financial decisions in the 2004-2007 boom did not have to pay the full penalty for their misdeeds in the 2008-2009 bust. And the reason they didn’t have to pay is that the government’s emergency measures helped keep their institutions from collapse.

1:29 Gary Burtless: We absolutely need to take steps to prevent the occurrence of another financial crisis of the kind we just experienced. Looking at Congress, however, I’m pessimistic that will occur. The short-term measures — however distasteful –protected the rest of us from even worse economic fallout from the crisis.

1:29 David Mark: Thanks for the chat, everybody.