Double Gurk!!

Steven Greenhouse reports on falling real wages in 2004. Why oh why are we still so far from full employment?

The New York Times > Business > Falling Fortunes of Wage Earners: Beginning in the mid-1990's, pay increases for most workers slowly but steadily outpaced the rate of inflation, improving the living standards for nearly all Americans. But an unexpected reversal last year in those gains has set off a vigorous debate among economists over whether the decline is just a temporary dip or portends a deeper shift that may cause the pay of average Americans to lag for years to come. Even though the economy added 2.2 million jobs in 2004 and produced strong growth in corporate profits, wages for the average worker fell for the year, after adjusting for inflation - the first such drop in nearly a decade....

The problem is not with the jobs themselves. Most economists dismiss as overblown the widespread fear that the number of jobs will shrink in the United States because of foreign competition from China, India and other developing nations. But at the same time many of these economists argue that the increasing exposure of the American economy to globalization, along with other forces - including soaring health insurance costs that leave less money for raises - is putting pressure on wages that could leave millions of workers worse off. 'We're in for a long period where inflation-adjusted wages will be under acute pressure,' said Stephen S. Roach of Morgan Stanley. 'That's a most unusual development in a period of high productivity growth. Normally, real wages track productivity.'

But some economists are more optimistic, saying that the wage sluggishness is temporary and that real wages have slipped only because a sudden spike in oil prices has briefly left workers behind the curve. These economists assert that wage stagnation will end soon, as normal growth brings a tighter labor market. 'What we're seeing now is not atypical; employers can't pay the wage bill to keep up with the oil price increase,' said Allan H. Meltzer, an economist at Carnegie Mellon University. 'I think the long-term trend will be that wages will right themselves and look like productivity growth on average.'... At a Sprint call center in North Carolina, 180 customer service representatives are well aware of how such forces are squeezing them. Their jobs have not migrated overseas, but the employees just concluded their most bruising battle ever over wages.... [M]any economists, liberal and conservative, are perplexed by two unusual trends. Wage growth has trailed far behind productivity growth over the last four years, and the share of national income going to employee compensation is low by historic standards.... The overall wage figures hide a split, with an elite group getting relatively large gains. In a study of census data, the Economic Policy Institute, a liberal research group, found that for the bottom 95 percent of workers, after-inflation wages were flat or down in 2004, but for the top 5 percent, wages rose by an average of 1 percent, with some gaining much more....

J. Bradford DeLong, an economist at the University of California, Berkeley, said that current wage patterns, while perhaps only temporary, did not conform to traditional economic explanations. 'You'd think that with the unemployment rate near 5 percent and productivity growth so strong, employers would be anxious to raise payrolls and would have plenty of headroom to raise wages,' he said. 'But they're not.' Since 2001, when the recovery began, productivity growth has averaged 4.1 percent a year; overall compensation - wages and benefits - has risen about one-third as fast, by 1.5 percent a year on average. By contrast, over the previous seven business cycles, productivity rose by 2.5 percent a year on average while compensation rose roughly three-fourths as fast, by 1.8 percent a year.

'The question is not whether corporations are seeking higher profits; the question is how come they're getting them to such a degree at the expense of compensation,' said Jared Bernstein, an economist with the Economic Policy Institute. 'I'm struck at how successful they've been at restraining labor costs.' Labor unions' declining bargaining power has given corporations a stronger hand to hold down wages, he argued, but more recent trends, including the emergence of Wal-Mart Stores as a central force in the economy, now play crucial roles, too.... Last year's double-digit rise in health costs helped squeeze wages as well; many companies also required employees to cover more of the premiums out of their own pay....

While agreeing that these factors are important, Richard B. Freeman, a Harvard economist, predicted that new competition in the form of millions of skilled Chinese, Indian and other Asian workers entering the global labor market will increasingly pull down American wages. 'Globalization is going to make it harder for American workers to have the wage increases and the benefits that we might have expected,' he said....

From 1996 to 2001, wages grew strongly again because of an unusually low jobless rate, caused in part by the high-technology boom. In the late 1990's, the tight labor market pressured companies to give sizable raises to attract and retain workers even as a surge in productivity helped business afford them without substantially cutting into profits. Thomas A. Kochan, an economist at the Massachusetts Institute of Technology, said wages could once again rise, but only if there was especially robust economic growth. 'To produce real wage gains now, it takes sustaining a very tight labor market,' he said. 'Without that, we're going to continue to see what we're seeing now: abysmal growth in real wages.'

Comments

[Altoid]

In my untutored view, this is more a matter of political economy than technical economics. The Cold War is over and alternative systems, which mattered greatly between 1917 and 1990, are dead. We no longer have to demonstrate that we provide a better standard of living than some alternative. There is no political demand from the top or (meaningfully) from the bottom for good corporate citizenship. That may not be all we need to know, but I submit it's a good start.

[bakho]

The declining power of labor unions is seen in the reduced numbers of strikes.

http://www.bls.gov/opub/ted/images/2005/apr/wk2/art01.gif

[bncthor]

..."Last year's double-digit rise in health costs helped squeeze wages as well..."

But, even if health care costs had declined, would the lower health care costs have showed up as higher wages?

[elliottg]

This is no mystery. Wages are sticky and prices are sticky. In a globalized world, both are going to be pushed down in real terms, but productivity improvements means that there is an increase in profits since costs fall more slowly than prices if you think of the cost as the labor cost per unit output. The only problem with this rosy scenario for corporate America is the falling dollar and energy inflation.

[John]

Brad, I wonder if you have any reaction to Brad Plummer's post today "Do Liberals Need an Economic Vision?" at http://plumer.blogspot.com/2005_04_01_plumer_archive.html#111326909536475224

I don't see any democrats having much to say about the Fed or the even about the economic consequences of fiscal policy. This Times article emphasizes that the economy has consequences, naturally.

[anne]

Remember that corporate profits have roared to the record highs of 2000, management salaries have roared along, but while wage gains were ample in 2000 that is not so now. There has evidently been a loss in bargaining strength of workers from union to individual, or less willingness by management to icrease wages. But, do not forget the problem is not lack of productivity gains and not lack of profits. The problem is lack of wage gains.

[Nathan Smith]

Globalization and immigration offer a ready explanation why wages might be falling. Economists traditionally offer straightforward proofs of why free trade should benefit the nation as a whole (a similar story may be applied to immigration). But it may harm parts of the population, namely those who compete directly with imports and/or immigrants.

In the world at large, labor is far more abundant relative to capital than it is in the United States. Integration of the US economy with the world economy, through globalization and immigration, should raise the returns of capital relative to those of labor.

What should we do about this? We could restrict immigration and trade, but this would eliminate many opportunities for poor citizens of our trading partners, and for poor would-be immigrants, to better their lives. We would also make ourselves collectively worse off.

A better idea is to spread capital ownership more widely among the population. Capital resources are far less evenly distributed among the population than labor resources, and it's probably not possible to change that fact, but we can ameliorate it. Policies which "endow" young people with a small account-- see here-- would help. So would a forced saving program.

I'm not saying that globalization and immigration ARE the reason for falling wages. Why would that effect show up now and not in 1996-2001? It's possible, but I think it's more likely that this is a cyclical change. However, inasmuch as this is a change in the trajectories of the returns to different factors of production, it constitutes part of the case for engineering a change in the distribution of other factors of production, i.e. for the ownership society.

[Tim H.]

Falling wages and stupendous trade deficits. Hello, protectionism. (Beats a recession)

[anne]

http://www.nytimes.com/2005/04/03/business/yourmoney/03pay.html?ei=5070&en=683763319df5f5c7&ex=1113969600&pagewanted=all&position=

My Big Fat C.E.O. Paycheck
By CLAUDIA H. DEUTSCH

...In fact, the boss enjoyed a hefty raise last year. The chief executives at 179 large companies that had filed proxies by last Tuesday - and had not changed leaders since last year - were paid about $9.84 million, on average, up 12 percent from 2003, according to Pearl Meyer & Partners, the compensation consultants.

Surely, chief executives must have done something spectacular to justify all that, right? Well, that's not so clear. The link between rising pay and performance remained muddy - at best.

Profits and stock prices are up, but at many companies they seem to reflect an improving economy rather than managerial expertise. Regardless, the better numbers set off sizable incentive payouts for bosses.

With investors still smarting from the bursting of the tech bubble, the swift rebound in executive pay is touching some nerves. "The disconnect between pay and performance keeps getting worse," said Christianna Wood, senior investment officer for global equity at Calpers, the California pension fund. "Investors were really mad when pay did not come down during the three-year bear market, and we are not happy now, when companies reward executives when the stock goes up $2."

Even when companies reported modest increases in executive pay, it was often because they shifted from stock options, which are listed as compensation as soon as they are doled out, to outright stock grants to be paid - and accounted for - down the road....

[Carol]

As anne's post explains, the wage increases have been appropriated not by the investors, but by CEOs, who have ready accomplices in the boards of directors. Returns on sotck ownership haven't gone up in proportion with the pay of CEOs either. An ownership society would solve nothing, unless the owners rebel against the robber barons sitting at the table in teh head office conference rooms.

[kharris]

Anne,

The latest quarterly profits data were pretty good, but at least some of that is just a recovery from the depressed levels of profits due to hurricanes in the prior quarter. Smooth things out and the past two quarters look pretty normal, which makes the level of CEO pay even harder to justify. CEO's didn't cause the hurricanes, nor did they cause the recovery.

[alkali]

My perpetual complaint: the power of labor unions is not "declining" (as if that were a consequence of the weather or a dip in the road). Persons with interests in taking power away from labor unions -- chiefly anti-union businesses and the politicians they support, mostly but not all Republicans -- have taken power away from labor unions, and so labor unions have less power.

(My other perpetual complaint: "Americans are working harder," as if Mr. & Mrs. America got up one day and decided that, gosh darn it, it's time to really knuckle down.)

[timshel]

Wages growing slower than inflation, or declining, seems to me to be a natural result of globalization. Globalization increases the supply of labor. Increases in supply lead to decreases in pricing power, in this case for labor. I mean this for the countries, like America, that enjoy relatively high wages. I'm not an economist. I've never understood why it is assumed that global labor competition is good for any American who is not an owner of the goods being produced (that reads like I'm for communism or something, I'm not).

I've never understood why economists blithely say we can just retrain Americans who lose their jobs, or experience real wage decline, to global labor competition. Most people have to go backward in earnings when retrained for a new industry for obvious reasons. I'm not suggesting we need an alternative economic system. I just don't understand why economists expect Americans to embrace the results of globalization. How does it help American workers?

I'm not saying it doesn't. I'm just saying that I've never seen an economist explain it in terms that made sense to me.

[John Emerson]

Aren't falling wages a goal under Republican administrations? From a management point of view, isn't that a good thing? Isn't it going to be the long-term trend indefinitely into the future? -- as per Brad's recent Atlantic Monthly piece, which might be online by now.

I don't like this stuff but the New Republic keeps telling me that it's a Trend and that nothing can be done about it, and that no one should try.

Apparently the jobless recovery with falling wages is a puzzle of some sort at the wonk level, but shouldn't the question be framed something like "We don't know what they're doing, but it seems to be working?"

[anne]

Thank you Carol and KHarris :)

American wage and job creation problems do not begin in France or South Africa or Brazil or China. To a meaningful extent we failed to use the fiscal stimulus to spur domestic demand and job growth. The limited employment of the series of tax cuts was an after-thought, and we can expect no such additional fiscal stimulus. Rather we might begin to look to the relation between management and workers that has been developing for years. Where does responsibility to worers reside? Where is a better balance in bargaining to be found between workers as individuals or groups and management? I do not expect such questions to be seriously considered at present, but they are there and resolution to problems in worker well-being will not be found abroad.

[Bruce Wilder]

An obvious (set of) explanatory factor(s) is that the Supreme Court elected Bush in 2000.

We take this whole economy-is-like-the-weather thing too far. We have exactly the economy, which Bush desires, and we think that is coincidental?

Within seconds of the inauguration, we have Enron and Worldcom embarking on frauds; within weeks of inauguration, we see employment plunging and the unemployment rate taking on exactly the same see-saw pattern as exhibited under Reagan-Bush (when the unemployment rate stayed high for so long, that some economists were beginning to question whether the "full-employment" unemployment rate had not risen a couple of % points above what it had been in the 1960's.

Major components of health-care costs, like pharmaceutical prices, are majorly subject to jawboning; a Democratic President could make them go flat year after year with scarcely more than a well-timed scowl. Rattle the antitrust sword in the direction of Kroger, and grocery prices would stabilize magically. Change the FCC and the so-called liberal media would rise from the dead. Install enough backbone at NLRB and the Department of Labor, and unionization at Wal-Mart would reverse a lot of trends, in wages and health-care coverage.

Democratic economists need to stop criticizing their in-power colleagues as incompetent, and start admiring their luck and skill in producing the economy "they" (but not "we") want.

[Ron]

Isn't a missing piece of this analysis the cost of health care? That is compensation to employees, a benefit they recieve in return for their work.

I wonder how the measure of real wages would look if health care benefits are included?

[anne]

http://www.nytimes.com/2005/04/11/opinion/11krugman4.html?incamp=article_popular_3

Ailing Health Care
By PAUL KRUGMAN

Those of us who accuse the administration of inventing a Social Security crisis are often accused, in return, of do-nothingism, of refusing to face up to the nation's problems. I plead not guilty: America does face a real crisis - but it's in health care, not Social Security.

Well-informed business executives agree. A recent survey of chief financial officers at major corporations found that 65 percent regard immediate action on health care costs as "very important." Only 31 percent said the same about Social Security reform.

But serious health care reform isn't on the table, and in the current political climate it probably can't be. You see, the health care crisis is ideologically inconvenient.

Let's start with some basic facts about health care.

Notice that I said "health care reform," not "Medicare reform." The rising cost of Medicare may loom large in political discussion, because it's a government program (and because it's often, wrongly, lumped together with Social Security by the crisis-mongers), but this isn't a story of runaway government spending. The costs of Medicare and of private health plans are both rising much faster than G.D.P. per capita, and at about the same rate per enrollee.

So what we're really facing is rapidly rising spending on health care generally, not just the part of health care currently paid for by taxpayers.

Rising health care spending isn't primarily the result of medical price inflation. It's primarily a response to innovation: the range of things that medicine can do keeps increasing. For example, Medicare recently started paying for implanted cardiac devices in many patients with heart trouble, now that research has shown them to be highly effective. This is good news, not bad.

So what's the problem? Why not welcome medical progress, and consider its costs money well spent? There are three answers.

First, America's traditional private health insurance system, in which workers get coverage through their employers, is unraveling. The Kaiser Family Foundation estimates that in 2004 there were at least five million fewer jobs providing health insurance than in 2001. And health care costs have become a major burden on those businesses that continue to provide insurance coverage: General Motors now spends about $1,500 on health care for every car it produces.

Second, rising Medicare spending may be a sign of progress, but it still must be paid for - and right now few politicians are willing to talk about the tax increases that will be needed if the program is to make medical advances available to all older Americans.

Finally, the U.S. health care system is wildly inefficient. Americans tend to believe that we have the best health care system in the world. (I've encountered members of the journalistic elite who flatly refuse to believe that France ranks much better on most measures of health care quality than the United States.) But it isn't true. We spend far more per person on health care than any other country - 75 percent more than Canada or France - yet rank near the bottom among industrial countries in indicators from life expectancy to infant mortality....

[anon]

a simple consequence of the vile maxim of the masters: "everything for ourselves, and nothing for other people."

[D. Barnes]

The decline in unions bargaining strength has led to a fall in U.S. wages, but so has this...

"The news surrounding the legislation comes from a proposed amendment put forth by Senator Kennedy, text here, that would increase the minimum wage by $2.10 over two years and an amendment from Senator Rick Santorum that would raise the minimum wage by $1.10 over eighteen months. ...

UPDATE: Both amendments were defeated tonight. The Santorum amendment fell 38 - 61 with 17 Republicans voting against it. The Kennedy amendment fell 46 - 49 with 4 Republicans voting for it."

http://littleredblog.marvinhutchens.com/2005/03/minimum-wage-and-bankruptcy.html

[Ian Welsh]

"Most economists" have no idea how to explain the economy of the last four years and have consistently overestimated the number of jobs to be created - practically every month has been below consensus. "Most economists" can't admit that the models aren't working and that until they do, perhaps they shouldn't blithely rule out offshoring and outsourcing - since their alternative explanations seem to have no predictive power.

[Auros]

It's seemed to me, for a while, that falling real wages are a key component of the right-wing economic vision. As per the Baker-DeLong-Krugman Brookings paper on stock returns, one scenario under which returns can go back to the historical norm without a huge crash in prices is if capital sucks away some of the current return to labor.

This of course makes private savings for retirement problematic, since workers will have less money available to invest for those higher returns. But it sure is a good deal for people who _already_ own a lot of capital.

Of course, the right-wing econ types may not have anticipated that the money they wanted to shift from labor to capital would instead end up pocketed by crony-capitalists in management and gov't.

[Auros]

D Barnes -- I was wondering why the Dems would've voted down a potential "compromise" on raising the minimum wage. Santorum's version included a measure that would've exempted many businesses from needing to pay minimum wage at all, leading to a FALL in many workers' pay. It also included some changes to flex-time rules; I'm not sure I agree with the Dems' opposition to this, since I rather enjoy flex-time (being able to work 50 hours one week, then 30 the next). However, I can understand how for lower-paid employees, flex-time could be abused to force employees to suit their working hours to the convenience of management, rather than vice-versa. I'd have to see a detailed analysis to know what I thought for sure, and in any case, the hike in the exemption from minimum-wage law was a deal-breaker.

[spencer]

I have a very good wage equation that has done a great job of tracking the growth of average hourly earniongs since the 1960s when that data series started. It makes the growth in average hourly earnings a function of inflation expectations, the unemployment rate and
capacity utilization -- each ahs about an equal weight.

It has worked great this cycle and implies that average hourly earnings growth is just now bottoming. But the problem is that the economy has finally gotten tight enought for wages to start growing, and guess what, the Fed starts tightening -- happens every time.

The problem is that the Fed sees rising average hourly earnings as inflationary and every time it starts to accelerate it tightens to slow growth and ease the demand for labor.

Somebody show me a better explanation.

[Auros]

Oh, incidentally, it's worth noting that falling, or even non-growing, real wages would change the math around price- vs wage-indexation. Wage-indexation was, after all, introduced as a way to slow the growth of benefits at a time when wages were stagnant.

[David Locke]

As one of the structurally unemployed/underemployed, I know that the IT recession hasn't ended. Instead, everyone just fell off the unemployment rolls, which is why the Republicans wouldn't reauthorize the emergency extension.

In a recent Yahoo News post, economists were discussing how wall street investors could overlook inflationary pressures. The stated solution was to fight wage inflation by outsourcing and offshoring. This means that there will be more structural unemployment to come.

Last year I took a contract that paid $25/hr and came with no benefits at all. When it got sorted out and I was minimizing my cost of living, I was no further ahead than I was in 1983 making $10.50/hr.

As far as health care costs go, I still don't have heath insurance. An increase in health costs for my employer does not translate into a benefit to me unless I actually go to the doctor, and typically I do not. Benefits are a cheap way for employers to leverage cash, so it appears that I make more than I go.

My current employer wants to cut $10M from heath insurance. When they do that, they need to pay me more by what they cut from me as an individual and the leverage factor if I am to stay just where I am. That I'm new and not yet on health insurance means that they need to pay me more regardless.

It's not that labor is dead, rather it is the fear of labor is dead. That won't last.

CEO pay should be contrasted by CEOs on the stand for fraud. What do they say? "Oh, I'm not responsible." Right!

Cutting HR budgets is a best practice. It is going to be done regardless of the underlying costs going up or down. The CEO's salary is going up. Most CEOs couldn't generate wealth from a gold mine. They are cash cow dairymen, them and all the rest of those MBAs in the resplendent "Old Economy" economics.

The thing that is forgotten here is that labor is the customer. The managerial class invests. The notion that we should be a nation of savers is totally wrong. It won't take much longer to see what happens to us when we no longer consume. The aim isn't for a recession, but a full-blown depression.

[Moe Levine]

this is called a giant sucking sound

that's spelled NAFTA.China

[Dale]

My homespun understanding takes into account many of the above ideas. It seems obvious to me that the China/ India development is playing a huge role. I also agree that the end of the cold war has reduced the elite's incentive to have a broad based affluent society to showcase to the world.
More and more people do not care about the well being of their neighbors. Years of social Darwinist propaganda has reduced the level of social solidarity. In that regard, at least, I am proud of the reluctance of ordinary Americans to let Bush destroy Social Security. There is the point at which broad based self interest and social solidarity come together.

But if globalization is actually increasing the gross wealth of the nation- a strong program of progressive taxation and redistribution in terms of services and $$ would be in order. But still people need the sense of pride that a good, meaningful job offers.

[lc]

Here! Here! Dale. While I agree "that the China/India (and South American) development is playing a huge role." I think you other point that "the elite's incentive to have a broad based affluent society to showcase to the world" no longer exist, hits home. Our liberal elite began to see other peoples, societies and cultures as something to be consumed. A literal manifestation: how many people do you know who think culture is a variety of restaurants in one's neighborhood, or downtown?

I listened to John Lukacs on CSPAN's BookTV (he was hawking his "Democracy and Populism: Hatred and Fear") this past weekend and he made the point that we've stop seeing people as human beings but now as "machines." I don't know if its years of social Darwinist propaganda that reduced the level of social solidarity, but its clearly lost, or no longer an ideal. I too hoped that we desired to be a model for the world. Instead we have economists working to some ideal equalibrium, liberals without restraints with a Baskins Robbins approach to peoples - "their should be some of each everywhere" or else you're xenophbic - who seek to help everybody and no one, and busineess people who seek the least expensive labor possible, scandalously in India, China points south for pennies on the dollar. Is this what we've fought to gain for 300 years? What kind of nation do we want to light unto the world?

[boing!!!!]

It is because all the Republicans' nannies read Dickens to them in the hopes of instilling empathy and compassion and instead elicited priapisms in the wee bonny creatures.

[Carol]

Labor has been treated as non-human for as long as anyone can read back in history. In the money/labor equation, the only human beings are the rich and the powerful, and they take care to enhance their humanity at every turn. The fact that our CEOs can give themselves mind numbing pay raises (an average of 12% last year, exceeding any return on investment for the average portfolio owner, and note I say average, not stupendously wealthy)indicates rather clearly that labor's problems are not competition with labor overseas, but the adhesive quality of the profits when close to the pockets of upper management, in all countries, even in Europe where compensation packages are rather modest compared to the Olympian benefits heaped upon our corporate elite.

It makes you wonder how long unhuman labor will allow their dignity to be trampled upon before they rebel. One major issue, in this country, is the illusion that anyone can become a member of the corporate elite, and this illusion undermines labor's incentive to rebel, because they theoretically might be cutting their own throats...

Of course, if there are labor rebellions all over the world, the CEOs might sit up and take notice, or maybe they'll finally be running scared. There is no equation in economics for human dignity, democracy and common decency, although it might be "assumed" to be the basis of a true free market. And that is the major weakness of economics (pace Heilbroner).

[Rob Hayward]

Surely real wages cannot continue falling otherwise people will not be able to purchase the products that are being produced? Maybe this is why net household savings are falling. However, at some point, net household wealth has to be rebuilt and then spending falls and profits (return on capital) fall to recreate the balance.

Alternatively, it could be that the relationship between returns on capital and returns on labour have changed as a result of the absorption of hundreds of millions of Asian workers into the global labour market. I guess this is more of a worry because this would suggest that there will be a further increase in inequality as those workers with no market power continue to find wages driven down, while those with some specialisation will extract rents.

[Jon Koppenhoefer]

Alan Greenspan once told the Senate that 'downward pressure on wage demands' was the happy result of the labor force's fear of unemployment.

I'm not only worried about the short-term. What troubles me is the past, and the future.

I read that it now takes two adults working fulltime per household to earn the same purchasing power that one could earn 30 years ago.

I read that after-tax corporate income relative to GDP is the highest it's been in 75 years.

I read that in the years since 1979, the highest 1% income recipients have seen after-tax income rise by 133%, while other brackets typically saw rises of 12% or so.

The long-term erosion of earning power seems to be not just the result of chance, but the application of government policy to reduce tax burdens on corporations and the upper income strata at the expense of individuals further down the ladder, so to speak.

Just what kind of tide is it that raises the biggest boats the most?

[anne]

Interesting comments, but I would argue the problem with job creation and wage levels is not Asia or Latin america or Africa but rather with the shaping of domestic social-economic policy. We are not running out of work, but have poorly used fiscal policy these last years and gained far too little work and wage support in return.

[Dale]

Anne,
We certainly haven't run out of things that need to be done- workwise. Are you suggesting public works projects? Or incentives for new hires? Or tax breaks for middle and lower income folks who will actually go out and but needed or wanted consumer items thus increasing demand? Channel tax dollars from military to civilian sectors where more jobs are created?

Still, given the unusual behavior of this jobless recovery, I'm beginning to see the lump of labor fallacy as not quite so fallacious. There may not be a set lump, but something a bit like a zero sum game seems to be playing out globally.

[anne]

Dale

Important question about the fiscal stimulus we have had. The tax cuts we passed were little designed to have a short term demand effect. Rebates we gained were largely an afterthought. Effects of the cuts will rather be felt as lower rates for wealthier households over many years. Tax cuts designed for middle income households during or right after the recession would have increased spending and demand so limiting job cuts and adding to job creation. A Federal revenue sharing plan would have allowed states to increase spending in areas of local importance. Revenue sharing was effective through the 1980s. Business credits for investment spending, and on....

[anne]

Dale

The more I think about your question, the more I realize I have to think more carefully so I will. Would a mix of more immediate demand stimulus through fiscal policy even if offset by a less dramatic lowering of interest rates by the Federal Reserve have spurred much more employment and lasting employment? I think so, but I am playing with the puzzle. We will come round to this again. When I am surest of a complex answer, I often should think again :) I am thinking.