Why Rolling Back Environmental Protection is the Wrong Fix for Jobs

Originally published on Economonitor.com.

Just when it seemed nothing could do it, persistently high U.S. unemployment has produced bipartisan agreement in Washington—agreement to roll back environmental protection in an attempt to save jobs and create new ones.

The White House, shrugging off off environmentalist opposition, has quashed a major EPA initiative that would have strengthened ozone regulations and is reportedly leaning toward endorsement of the Keystone XL pipeline to carry petroleum from Canadian oil sands. Republicans have applauded and issued their own list of proposals, including rollbacks of regulations for coal ash, farm dust, greenhouse gasses, and cement plants, among others.

None of this is good news, either for the environment or the economy. Rolling back environmental regulations is the wrong way to fix the jobs problem. Here's why.

Data for the Classroom: No New Payroll Jobs in August

Private payroll job growth for August was zero, the worst showing since since September 2010. Adding to the gloom, the job growth numbers for May and June were revised downward by a total of 52,000 jobs. Private nonfarm jobs increased by a slim 17,000 but that gain was offset by a loss of 17,000 government jobs.

The labor force, which includes both employed and unemployed persons, grew by 366,000. Of these 331,000 found jobs and 35,000 were added to the officially unemployed as soon as they started looking for work. The unemployment rate, which is the ratio of unemployed persons to the labor force, remained unchanged at 9.1 percent.
The unemployment rate is based on a survey of households. It uses a different methodology than the payroll job report, which is based on a survey of employers. Among other things, the household survey includes farm workers and self-employed persons. It is not unusual for the two surveys to point in different directions in any given month, as was the case in August.

The government also calculates a broader measure of unemployment called U-6. The numerator of U-6 includes unemployed persons, marginally attached persons who would like to work but are not looking because they think there are no jobs, and part-time workers who would prefer full-time work but can’t find it. The denominator includes the labor force plus the marginally attached. A shorter average work week led to an increase in involuntary part-time workers and caused U-6 to rise in August.

The employment to population ratio ticked up to 58.2 percent, just above the all-time low reached in July. The long decline in the ratio reflects several factors, including slow job growth; more discouraged workers, who do not look for jobs because they think none are available; and more retired persons as the population ages. For a full discussion of the trend in the employment to population ration, see this earlier post.





Follow this link to view or download a set of classroom-ready slides with graphical presentation of the latest unemployment data.

How Germany Free-Rides on the Euro

For years, I have warned my European students of the fiscal free-rider problem built into the structure of the euro area. My examples have always been fiscally undisciplined peripheral governments seeking political gain by running budget deficits at the expense of their euro partners. Now, though, as the debate unfolds over measures to cope with the European sovereign debt crisis, it is becoming increasingly apparent that Germany, the long-time locomotive of the euro, is also, in its own way, free-riding on the common currency.

The free-rider problem arises whenever someone is able to capture the full benefits of an action while shifting all or part of the the costs to others. I introduce the concept to my students with the example of ten friends eating dinner in a restaurant. If they know they will get separate checks at the end of the meal, they all order hamburgers and beer. If they know there will be one check, to be split equally among everyone at the table, they order steak and champagne.

In the case of  deficit-prone peripheral members of the euro, individual governments capture the full economic and political benefits of fiscal stimulus while shifting part of the costs to other euro members. This happens in two ways. Read more>>>

Already Weak, US GDP Growth in Q2 2011 is Revised Downward

U.S. GDP growth for the second quarter of 2011 was revised downward to a 1 percent annual rate from the 1.3 percent advance estimate reported last month. The downward revision disappointed many observers. About 2.5 percent growth is generally considered necessary to keep unemployment from rising, when growth of the labor force is taken into account.

Although a recovery has been underway for two years, the level of U.S. real GDP has not yet reached its peak level of mid-2007, before the recession. When GDP finally reaches its previous peak, the economy will have been considered to make the transition from the recovery phase of the business cycle to the expansion phase.

About three-quarters of the growth of GDP was attributable to investment, mostly business fixed investment. Housing investment remained weak. Consumption grew by about 0.3 percentage points. The government sector contracted, with slight growth of federal government activity more than offset by falling state and local government purchases. Net exports barely edged up, with moderately strong export growth almost fully offset by growth of imports.

Follow this link to view or download a set of classroom-ready slides with graphical presentations of the latest GDP estimates.

Why Rick Perry's Position on Climate Change Makes Him a True Conservative

Rick Perry is a climate-change skeptic. Sure, he says, the world is getting warmer, but the climate has often changed. He doesn't buy in to the idea that human activity has an effect on the current warming trend. Friedrich Hayek would say that makes him a true conservative.
Hayek liked to view the political spectrum not as a left-to-right line with socialist and conservative poles, but as a triangle. Conservatives were at one corner, socialists at another, and liberals at the third. The terminology has changed a little since Hayek's time. Conservatives are still conservatives, but, at least in the United States, those on the left now prefer to identify themselves as progressives rather than socialists. Most of those who, in Hayek's time and before, called themselves liberals, today prefer to identify themselves as libertarians, or sometimes, classical liberals.
In a famous essay "Why I Am Not  Conservative," Hayek identified a number of characteristic tenets of conservatism, including:

• Habitual resistance to change, hence the term “conservative."
• A claim to self-arrogated superior wisdom in place of rational argument.
• A propensity to reject scientific knowledge because of the consequences that seem to follow from it.
• Use of state authority to protect established privileges against the forces of economic and social change.

All of these tenets feed into Perry's views on climate change. He resists any change to an American path of economic development based on cheap, carbon-intensive energy; a path economists sometimes call extensive as opposed to intensive growth. He proudly claims superiority of faith-based wisdom over rational argument. And, especially in the case of climate change, he is quick to reject scientific knowledge. Read more >>>

US Employment-Population Ratio Hits a New Low: Why It Matters for the Budget Debate

By and large, U.S. media have spun the July employment report as more positive than negative. The 117,000 new payroll jobs created last month and the upward revisions for May and June were a relief after two months of very bad data. The downtick in the unemployment rate, although slight, was also welcome. One indicator that rarely makes the headlines told a different story, however. The employment-population ratio fell to a new low of 58.1 percent. What does it mean? Why should we care?

We should care, because the sinking employment-population ratio has big implications for the budget debate. The cuts-only faction of budget balancers are demanding a cap on federal government spending at 18% of GDP. They tout that as a level we lived with happily in the past, and should therefore be happy to live with in the future. The trouble is, the future isn't going to be like the past. The smaller the fraction of the population that is working, the harder it becomes to put the country's fiscal affairs in order. That becomes even clearer if we take a closer look at the reasons the ratio is falling. Read More >>>

Data for the Classroom: US Labor Market Shows Slight Improvement in July

The U.S. labor market showed a slight improvement in July, if only in comparison to the very dismal June numbers.

The closely-watched figure for non-farm payroll employment showed a gain of 117,000 jobs. Private sector jobs increased across a broad range of sectors, but those gains were offset by continued declines in the state and local governments, which lost 37,000 jobs in the month. There was some good news in the form of an upward revision of very weak preliminary numbers reported earlier for May and June. May job gains were revised upward from 25,000 to 53,000 and June from 18,000 to 46,000.