Jobs and Austerity

By reasonable standards, we got a good jobs report today. 271,000 hires with a drop in part-time employment, a rise in wages and positive revisions to earlier months. It’s not Reagan, but it’s good.

So … time for your monthly reminder. This is not supposed to be happening. We are now in our fifth year of “austerity” where federal spending has been essentially flat and state spending has fallen. According to all the Keynesians, we are supposed to be back in recession. Job creation simply isn’t possible without government spending. According to the likes of Krugman, that’s the only variable that matters: how much the government is spending.

Now just imagine if our employers weren’t hamstrung with over a trillion dollars in deadweight loss from excessive regulation, over-complicated taxes and an expanding welfare state. The economy is staggering around with a five ton elephant on its back and is still producing jobs.

Now I suppose a clever left-winger will reverse those statements. “The economy is succeeding despite regulation and Obamacare! If only we didn’t have austerity!” Here’s the difference. We can measure the effects of regulation and taxation. There are direct compliance costs that absolutely come out of the pockets of employers. The effects of austerity are based on speculation and economic models that have yet to predict anything. When it comes to which narrative we should believe — the very visible dollars being sucked out of our bottom lines or the theoretical dollars being eaten by “austerity” … well, you be the judge of which of those you think is real.


I’ve been lazy on the Libor scandal because it made my head spin. It seemed like an obscure financial scandal confined to the UK. But I was wrong not to pay attention. As Matt Yglesias explains, this scandal — involving interbank loan rates — isn’t some obscure financial bullshittery:

Even though the typical American is never going to seek an interbank loan in London, the number is used as a benchmark for a wide range of other financial instruments. Credit instruments with variable interest rates—private student loans, auto loans, adjustable-rate mortgages, credit cards, etc.—need to be indexed to some underlying marker of the overall cost of funds within the financial system. Often that’s something called the “prime rate” set here in the United States, but it’s also frequently the Libor. So growing evidence that Libor numbers have been deliberately manipulated by banks for years means that millions of people have been paying the wrong interest rate on all manner of financial products. Vast sums of money have been wrongly snatched from innocent people and created equally vast undeserved windfalls for others.

Essentially, Libor is an estimate of what it costs for banks to lend each other money. Those interest rates feed … everything. They are based on banks reporting data on borrowing. And it turns out that banks tailored their reports to under- or over-estimate Libor so that their financial arms could make huge profits on the information asymmetry. The banks knew what the real libor was but made sure a bogus libor was put out so that they could make millions. Then, when the financial crisis hit, both the banks and the regulators conspired to keep the rates low so the economy and the banks would seem healthier than they actually were.

A few heads have started rolling — put a pin in that for a second — but I think people are missing the forest for the trees. The corruption of Libor was inevitable. An informal system like this may have worked when all the bankers knew each other and agreed not to manipulate the system. But as Mark Calabria notes, it was never going to be as good as a system based on actual market performance. It was precisely the sort of cosy insider bullshit that has been exploding in our faces for the past five years.

And this is bigger than the billions or maybe trillions these guys ripped out of our pockets. What this really is, when you think about it, is a suicidal attack on the financial system itself. The financial system functions on trust. If we come to believe the game is rigged, we might as well just rename ourselves New Zimbabwe. So far, Barclay’s is the only bank implicated, but that’s because they’re cooperating (sorta). This will spread and spread until banks across the world are engulfed.

Now, returning to the head rolling: I’ve frankly lost patience with these fuckers in the banking industry. When they make me agree with an op-ed by Robert “The Littlest Communist on Slate” Reich, they’ve gone too far. Rolling out the heads of a few mid-level executive is simply not going to cut it this time. Entire boards need to be fired. People need to be jailed. This business of shrugging shoulders and offering a few ritual sacrifices is insufficient for this crisis.

Let’s be clear: we don’t need some new huge slate of regulations and capital restrictions. Stephen Baindbridge points out how often these crises result in bad laws that hurt the economy and do nothing to prevent further scandals. No, what we need to do is enforce the laws we have to the fullest extent. What these guys did was fraudulent. We’ve had laws against that for centuries.

The Bill Comes Due

Here’s the great thing about Obama’s speech to Congress about jobs: it’s never going to happen. Lots of libs are jumping all over this story, detailing Republican reluctance to give Obama a win. Fair enough. I have a Republican-slamming post cooking. But this wailing and gnashing of teeth might be more impressive if Obama himself weren’t scuttling the plan:

The White House said Monday that President Obama wants to pay for his $447 billion jobs bill by raising taxes on the wealthy and businesses.

Jack Lew, director of the Office of Management and Budget (OMB), said the tax hikes would pay for Obama’s entire bill, which the administration is sending to Congress Monday evening.

The chief provision announced by Lew would be to limit itemized deductions for individuals who make more than $200,000 a year and families that make more than $250,000, something the Obama administration has previously pushed to do through its budget proposals. Lew told reporters at the White House press briefing that this would raise about $400 billion.

So much for paying for this out of future spending cuts.

The Republicans will not agree to this and they shouldn’t. This takes money from one group of tax payers and gives it to another. Net economic impact: minimal. And paying for this with deduction phase-outs is mind-boggling. Phase-outs of deductions tend to create cliffs in the income tax — places where the phase-out causes the marginal rate to exceed 100%. Indeed, the phase-out of Obamacare subsidies with income, as I’ve noted, creates marginal rates of up to 174% for low-income people.

Obama knows the GOP will not agree to this. And that’s what bothers me more than anything. If he wanted this passed, a promise to cut future expenditures by tiny percentages would pay for it and possibly win some GOP support. By going the tax route, he’s simply trying to put the inevitable failure of this bill on the GOP.

Given what he knows about the GOP, I find it hard to believe that Obama doesn’t want the bill to pass. And I suspect a big reason is that he’s quite aware that it will be of marginal impact, Mark Zandi’s ridiculously precise and optimistic projections not withstanding. Team Obama knows that our biggest problem — private and public debt — is something we can only work around with time. So while they’re waiting for the nation to work its way out from under the boulder, they might as well throw up a flashy jobs plan and blame the GOP for its failure.

(While we’re on it, it’s worth noting just how much $450 billion is and how inefficient this proposal is. Steve Allen notes that $450 billion is enough to give every unemployed person $32,000 to do volunteer work or an unpaid internship for anyone who will unlock the door. But of course, that wouldn’t line the pockets of government contractors and employees.)

Sigh. Just yesterday, I was having positive thoughts about this President. I was looking back over the last 2+ years and seeing the huge ramp-up in drone attacks that have killed more Al-Qaeda leaders than ever before and thinking this was good foreign policy. Then he lays this political bullshit on us.

Licensed Into Poverty

Conor Friedersdorf has an enragifying article about how permits and licenses are strangling the American economy. After using the example of Burns Harbor — a small town with a terrible economy that now requires onerous permits for any business, he summarizes:

The normal mindset among U.S. officials is that prior permission should be required to sell legal goods to a willing buyer. Kids selling lemonade on the street are shut down. A Missouri man has been fined $90,000 for selling rabbits (he made about $200). In Illinois, an artisan ice cream maker is being shut down for lack of a dairy permit. Manuel Winn was arrested, handcuffed, and booked for selling magazines door-to-door without a permit. A Maryland mother of three was arrested for selling $2 phone cards without a license. Lots of municipalities are going after food trucks. A group of Louisiana monks had to go to court to win the right to sell simple wooden caskets to consumers.

If you read enough of these stories, you’ll see the targeted entrepreneurs say the same thing again and again: I just had a good idea and started a business. It never occurred to me that I needed permission. And, of course, other would be entrepreneurs don’t ever get started because they’re too intimidated to assess and grapple with the bureaucratic hurdles. Or else the regulations are written in a way that excludes from commerce folks who are operating at a very small scale.

I can see licensing, say, doctors or airline pilots. But we’ve gotten to the point where beauticians, decorators and food vendors — businesses people can start with talent and a business card — are closed off. A quarter of American jobs now require some official license or permit.

Big business, needless to say, loves permit and licensing requirements. These are much easier to handle when you’re an established million dollar business as opposed to a small thousand dollar business. And brick-and-mortar stores are delighted when the authorities chase away taco carts and raid a salon run out of someone’s living room.

But we are strangling entrepreneurship. And strangling it most viciously in communities and demographics that are struggling. Many is the American whose success in life started with a small food stand or a neighborhood beauty salon. But self-important assholes at all levels of government have decided that entrepreneurs must genuflect to them; must beg and pay for the privilege of growing the economy.

This is something that should be non-partisan. Conservatives and libertarians should be fighting this for economic freedom. And indeed, the eeevil conservative Institute for Justice is doing all they can, having won a huge victory for the Louisiana monks. Liberals should be behind this too, however, since these regulations trap poor people in dependency. But every time Matt Yglesias brings this up, he gets hammered by his readers.

This probably requires action at the state level, since fighting this regulation-by-regulation is like fighting Lernean Hydra. Governors need to be putting in laws or amendments establishing a basic right to do business. But is anyone going to run on this kind of platform? I’m not holding my breath.