Are we there yet?

R o b e r t R i c k e t t sF r a n k M . B u r k e C h a i r i n Ta x a t i o n

R a w l s C o l l e g e o f B u s i n e s sTe x a s Te c h U n i v e r s i t y

M a r c h 2 0 1 2

Economics 2012

World Industrial ProductionNow vs. Great Depression

Volume of World TradeNow vs. Great Depression

World Equity MarketsNow vs. Great Depression

Still, the Worst Downturn Since WWII—Although Things are Slowly Getting Better

Unemployment is Dropping

Payrolls are Increasing

Where are the Jobs Coming From?

How is it that Jobs Increase but the Unemployment Rate Stays the Same?

Employment to Population Stabilizing?

February Jobs Report Relatively Good

Current Statistics (February 2012, seasonally adjusted, BLS)Civilian non-institutional population, 16yr+, (CPS, Household Survey)

242,435,000

Employment (CPS) 142,065,000Employment (CES, Payroll Survey) 132,697,000Number of unemployed (CPS) 12,806,000Civilian labor force estimate (CPS) 154,871,000Unemployment rate estimate (CPS) 8.3%Labor force participation rate estimate (CPS) 63.9%

Wages Remain Relatively Low

Especially for Nonsupervisory Employees

Business Production is Rising

Labor Doesn’t Appear to be Sharing in Profit Growth

Still, Inventories are Shrinking, Suggesting that Further Increases in Production are Ahead

So How Quickly Must the Economy Grow to Return to “Full” Employment?

New Website Hosted by the Atlanta Federal Reserve:http://www.frbatlanta.org/chcs/calculator/index.cfmThe “Jobs Calculator” calculates the net employment

change needed to achieve a target unemployment rate after a specified number of months. The user can adjust the target unemployment rate, the number of months, and the assumed labor force growth.

Calculator estimates that the economy will have to generate between 297,000 and 318,000 jobs per month to reduce the unemployment rate to 5.0% in the next 24 months. (We have averaged about 160,000 jobs per month for the past year—private payrolls have increased at about 200,000 per month, while government jobs have been declining around 40,000 per month on average).

Compare January Reports last 5 years

Jobs report – last 5 Januaries:

January 2008: +13,000 January 2009: -820,000 January 2010: -39,000 January 2011: +68,000 January 2012: +243,000

So … What to Do?

Current Debate is About What Government Should Do:

Nothing?Stimulus—if so, what kind?

Infrastructure spending Individual tax cuts Corporate tax cuts Other?

Is the budget deficit relevant?

First, What’s Holding Down Consumption (besides job uncertainty)

Why Credit Overhang is Different Now

The Effects of “Austerity”

Major Policy Initiatives and the Deficit

Deficits and Government Spending—Comparing the Last Seven Administrations

Components of Government Spending:1962-2022 (post 2012 figures projected)

Reducing Unemployment and Government Spending are Inextricably Linked

Spending—by the Numbers

Program Spending as a Share of GDP Under Continuation of Current Policies

Avg 1962-2011

2012 2017 2022

Primary outlays 18.5% 22.0% 20.0% 20.0%Less Social Security 14.5% 17.1% 14.9% 14.5%Less Social Security and Medicare 13.0% 13.8% 11.6% 10.8%

Note: program spending includes all federal expenditures other than net interest on the debt. Sources: OMB through 2011; CBPP analysis of CBO data thereafter.

Maturity-Weighted Real Interest Rate on U.S. Treasury Debt

“Out of Control” Spending?Do the Markets Anticipate Inflation?

Same Graph: 2011-2012

Actual Inflation

Next Week

The Role of Tax Policy in the Recovery: Short and Long Run Issues Budgetary considerations Inequality and economic performance Regulatory uses

Roadblocks Ahead? Europe Politics Wall Street

Unemployment is Taking Longer and Longer to Adjust