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Economics 2012 Are we there yet? Robert Ricketts F r a n k M . B u r k e C h a i r i n Ta x a t i o n Rawls College of Business Te x a s Te c h U n i v e r s i t y March 2012 World Industrial Production Now vs. Great Depression Volume of World Trade Now vs. Great Depression World Equity Markets Now 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, 242,435,000 Household Survey) Employment (CPS) 142,065,000 Employment (CES, Payroll Survey) 132,697,000 Number of unemployed (CPS) 12,806,000 Civilian labor force estimate (CPS) 154,871,000 Unemployment 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.cfm The “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