Those who ignore history are doomed to repeat it

It was 1937. The US economy was almost completely recovered from the Depression. The GDP, production, profits, and wages had all regained their 1929 levels. Unemployment remained high at 14%, but had dropped about half from its Depression high of 25% in 1933.

Sound familiar? It's very similar to where we are today.

But FDR, concerned about large deficits and their impact on the national debt, and egged on by conservatives, decided to cut federal spending and tighten the money supply.

Econ 101 side note

All economies fundamentally consist of a series of transfers of wealth. People and organizations exchange some of their wealth for a necessary (or desired) good or service. Renting a movie? You've just exchanged some of your wealth for a desired good. Buying food at the grocery store? Same thing. Getting your vehicle's oil change? Exchanging wealth for a service. When an airline buys new civilian aircraft from Boeing, it's a bigger example of the same thing. When the federal government orders military aircraft, it's another example of a big transfer of wealth.

All those wealth transfers add up to create the GDP - the sum total of all money that changes hands in this country. When the GDP grows, our economy is doing well. When the GDP flattens out (because not as many transfers of wealth are taking place, or because the transfers are all smaller), the economy stalls. When the GDP shrinks, we're having an economic downturn. If it shrinks a little, that's a recession. If it shrinks a lot, it's a depression.

There are three types of actors in the economy: individuals, companies, and governments.  And all three sets of actors contribute to the economy. The biggest single contributor is the federal government.

Now, back to the story

In 1937, the Roosevelt administration cut spending. This took a huge chunk of money out of the economy. They also tightened the money supply, making what money was left in circulation harder to get. Because businesses weren't back to spending as normal yet, this caused the economy to tank.

The result was the recession of 1937, arguably the second-worst economic downturn of the 20th century.  Industrial production declined almost 30 percent. Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels. Unemployment spiked from 14.3% in 1937 to 19.0% in 1938.

The lesson

Taking a huge chunk of money out of circulation in 1937 by cutting federal spending during a recovery caused the economy to tank. And yet that is exactly what the GOP proposes to do now.

Who's getting the blame for the government shutdown?

The GOP has been feverishly trying to place the blame for the government shutdown on President Obama and the Democrats. But the polling numbers show that their attempt isn't working very well. Multiple (in fact, all the polls) polls show that the public blames the Republicans for the shutdown more, and in some cases much more, than it blames President Obama and the Democrats.

NBC/Wall Street Journal Poll (October 7-9, 2013): "By a 22-point margin (53 percent to 31 percent), the public blames the Republican Party more for the shutdown than President Barack Obama – a wider margin of blame for the GOP than the party received during the poll during the last shutdown in 1995-96."

AP/GfK Survey (October 9, 2013): "62 percent mainly blamed Republicans for the shutdown. About half said Obama or the Democrats in Congress bear much responsibility."

CNN/ORC International survey (October 5-6, 2013): "63% of those questioned say they are angry at the Republicans for the way they have handled the shutdown."

Meanwhile, public support for the GOP in general seems to be dropping in a corresponding manner.

Gallup's October 3-6 poll showed that Republican favorability has dropped to an all-time low. "With the Republican-controlled House of Representatives engaged in a tense, government-shuttering budgetary standoff against a Democratic president and Senate, the Republican Party is now viewed favorably by 28% of Americans, down from 38% in September. This is the lowest favorable rating measured for either party since Gallup began asking this question in 1992." Take a look at the chart on the Gallup website, and you can see that the last time the government shut down, GOP favorability also took a huge dive. The twin 1995-1996 shutdowns ended up costing the Republicans several seats in Congress.

There appears to be some real anger. A late-September CNN poll revealed that 69% of the public think the GOP are acting like "spoiled children" over the budget negotiations.

The GOP proceeds with this shutdown at their own peril, because the public clearly places the majority of the blame on them.

Is Obamacare really that unpopular?

The GOP has long been claiming that Obamacare should be defunded/rescinded because it's unpopular, and the polls seem to back them up. Real Clear Politics shows that the polls are running on average about 50% opposed, 40% in favor, and 10% undecided. The Kaiser Family Foundation polls show a slimmer majority in opposition, but still a majority.

But the Kaiser Family Foundation recently posted something else that shows that many Americans don't know what's actually in Obamacare, but when they find out they tend to broadly support it.

Here are some things in the Affordable Care Act that Americans support:

• Allowing young Americans to stay on their parents' coverage. Since this was implemented, the percentage of uninsured young people (ages 19-25) fell from 48% in 2010 to 21% in 2012. 76% of Americans support this, including 69% of Republicans.
• Tax credits to small businesses to buy insurance. According to an article in Forbes, many small businesses are already eligible for tax credits of up to 35 percent. After January 1, 2014, the credit increases to 50%. 88% of Americans support this, including 83% of Republicans.
• Close Medicare “doughnut hole”. 81% of Americans support this, including 74% of Republicans.
• Health insurance exchanges. 80% of Americans support this, including 72% of Republicans.
• Subsidy assistance to individuals. 76% of Americans support this, including 61% of Republicans.
• Medicaid expansion. 71% of Americans support this.
• Guaranteed issue (no pre-existing conditions). 66% of Americans support this, including 56% of Republicans.
• Medical loss ratio. 65% of Americans support this, including 62% of Republicans.

The GOP knows (and Republican Senate Minority leader Mitch McConnell has said) that it's easier to prevent something from happening than it is to undo it later. It appears to me that Obamacare is likely to be pretty popular once the word gets out, and my in fact eventually be thought of as being virtually untouchable, like Social Security and Medicare.

Election night clues

I've been following the presidential polls more closely recently and here's my take on what to look for on election night.

As of 3 November, CNN has President Obama with a lead in the electoral college, and classifies the following eastern states as "toss-ups": New Hampshire, Virginia, Florida, and Ohio. Almost all the analysts believe that Governor Romney must take at least two of these states to have any chance of winning. They also point out that no Republican has ever won the election without carrying Ohio.

Note that although I'm using the CNN map below, others (Rasmussen, Real Clear Politics) pretty much agree with this assessment. Here's the map:

Map courtesy CNN

Looking only at the toss-up states (I'm making a large assumption that each candidate will hold onto the states that are either safe for them or leaning towards them), currently:

• All of the polls in New Hampshire show President Obama with a small (2-5 point) but stable lead.
• All of the polls in Virginia show President Obama with a 3-5 point lead.
• In Florida, things are more confused. Three polls show President Obama with a 2-point lead, while one poll shows Governor Romney with a 6-point lead.
• All the polls show President Obama with a lead in Ohio.

So, when the returns start to come in, watch these four eastern states. They'll be your clue as to how the night will go.

• If Governor Romney takes all four states, that gives him 270 electoral votes, and he wins. That's pretty far-fetched, given the polls I mentioned earlier.
• Governor Romney needs to win three of these four toss-up states to have any chance. If Governor Romney takes Florida and Virgina, he still has a small chance. But he'll also need to win almost all of the other tossup states. If he also takes Ohio, that will help him a lot.
• If Governor Romney loses three of the four states, the election is over.

Wednesday morning update

Obama won the election and took New Hampshire, Virginia, and Ohio. Things are too close to call in Florida, but Obama leads there as well.

If Obama holds his lead in Florida (most of the uncounted ballots are from in Dade County, which leans heavily towards Obama, so it looks like he'll win that state), Obama took all of the toss-up states. Impressive.

Obstructionism and the Filibuster

During the Bush administration, Democrats were frequently accused of being "obstructionist".

Fox News published are article just before the start of Bush's second term headlined "Dems Plan to Obstruct Bush Agenda." Six month later, President Bush accused them of obstructionism himself:

"President Bush spent Tuesday ... accusing Democrats of standing for nothing but obstructionism."

All this despite the fact that until January 2007, the Republicans had firm control over the White House and both Houses of Congress.

One of the tools that the minority in the Senate can use to block the will of the majority is through the use of the filibuster. In the "olden days", that was romanticized as a lone Senator standing on the floor and arguing his position, and refusing to yield the floor until he or she either wore and and gave up , or until the majority gave in. These days, it's much easier; the minority just signals that they're going to filibuster the bill and don't actually have to say anything.

Overcoming a filibuster requires a vote of cloture. In order to pass the vote and end the filibuster, a three-fifths vote of the Senate is required. In the modern Senate, that's 60 votes.

The filibuster - not so romantic any more

There are no direct counts of the number of filibusters conducted. The Senate does, however, publish the number of cloture votes held, which under-represents the actual number of filibusters, because there are some filibusters that don't go to a cloture vote because the majority concedes that they don't have enough votes to overcome it.

So we're forced to use the number of cloture votes instead of actual filibusters.

Here are the number of cloture votes by Congressional session, with the minority party noted. As can be clearly seen, the number of filibuster roughly doubled when the GOP became the minority party in 2007.

Source: US Senate

Clearly, the GOP has been more obstructionist than the Democrats were. The number of cloture votes in the last six years since the Democrats took majority control of the Senate has doubled.

The Labor Participation Rate and unemployment

I was talking with someone a few days ago about the unemployment rate, and pointing out that in his first term, President Obama has a better record on unemployment than both Presidents Reagan (see it here) and George W Bush (see it here) in their first terms. This person claimed that the unemployment rate looks artificially better than it really is because of a drop in the Labor Participation Rate.

Defining terms

The unemployment rate is the percentage of the work force that's out of work, but looking for work.

The Labor Participation Rate (LPR) is the percentage of the general population of the country that's in the work force.  You aren't in the work force if (1) you're under 16, (2) you're institutionalized (in a nursing home, in prison, or in the military), (3) you aren't available for work (retired, a stay-at-home parent, disabled, etc.), or (4) you haven't looked for work in more than a year.

The LPR is falling! The LPR is falling!

Back to the story. The person I was talking to claimed that the LPR is dropping because so many workers have grown discouraged and have left the workforce. He pointed out that the LPR has dropped from 65.8% when Obama took office to 63.6% now. And, he said, lowering the size of the work force makes unemployment look lower than it really is.

So let's look at those two claims: (1) the reason people are leaving the workforce is that they're growing discouraged, and (2) a smaller work force makes the employment situation look better than it is.

Why is the LPR dropping?

Data on the LPR is available from the Bureau of Labor Statistics (BLS). The data does indeed show that the LPR is dropping. However, it shows that the LPR has been dropping since 2000.

Here, let's look at a chart of the LPR from 1960 to the present:

Labor Participation Rate 1960 - present (chart courtesy BLS)

Does that shape look familiar? It should, it's the first part of the classic bell-shaped curve. It shows that the LPR began to increase about 1965, reached its peak in the late 1990's, and began to decline in 2001.

Are there anything that can account for that bulge? Of course, and it should be obvious - the Baby Boomers. Boomers were born between 1946 and 1964. The bell-shaped curve begins it upward sweep when the first Boomers joined the job market in the mid 60's, and it began declining when the first boomers began retiring around the turn of the century. Now, about 10,000 Boomers are retiring every day. From the link:

A recent article by the Chicago Federal Reserve Bank estimated that at least half of the decline in the labor force participation rate (LFPR) in the recent recession was due to retirement.

I'm not saying that none of the LPR drop is caused by the recession, but the bell-shaped curve caused by the Boomers leaving the job market is clearly a major factor.

So I think I've established that the drop in the LPR isn't caused by the recession (although the recession does have some impact).

Now, let's turn to the second claim. Namely, that those who retired in discouragement aren't counted as part of the work force and are therefore making the unemployment situation looks better than it really is.

I'm discouraged. Do I count?

Remember the definition of terms up above? If not, scroll back up and take a look at who's defined as not in the work force. It's OK - I'll wait.

Welcome back - let's continue. The 4th reason for someone not being in the work force is that they haven't looked for a job in more than a year. As long as they want to work, are available for work, and have looked for a job at any point any time in the last year, they're counted as part of the work force. These folks are called "discouraged workers" by the BLS.

As I've said before, the BLS reports on several unemployment statistics every month. Among them is the report on U-6 unemployment. U-6 includes those discouraged workers. And it, like the more frequently reported U-3 ("official") unemployment report, has been dropping. In the last year, it's dropped a full percentage report, from 15.7% to 14.7%.

So the only people who would cause the LPR to go down and who wouldn't appear as unemployed are those who meet all these conditions:

• Over 16
• Not in a nursing home, prison, or the military
• Unemployed
• Want to work
• Are available for work
• Haven't applied for any job in more than a year

I know a few unemployed people, but I don't know anyone who meets all those criteria. I suspect they're pretty rare. If anyone out there can find any hard data one way or another on this subject, I'd love to see it.

Is unemployment being under-reported?

Some conservatives have been claiming over the last several months that the unemployment situation during this recovery only "looks" like it's getting better because so many people are getting discouraged and have stopped looking for work. A few of the more unenlightened ones even claim there's a "cover-up" of the "real" unemployment numbers. That latter charge is completely false. The federal government reports on several different unemployment statistics every month. The ones we're concerned about are the U-3 (official) and U-6 (underemployed and discouraged) rates.

Before examining that first accusation, we need to define our terms.

Defining the terms

The U-3 rate (the one that makes the news) includes those over 16 years of age, who aren't institutionalized (which means not in a nursing home, prison, or the military), who are available for work, and who have looked for a job in the last four weeks.

The U-6 rate includes everyone in the U-3 number, plus the underemployed and the discouraged workers.

The "underemployed" are those who are working part-time who are available to work full-time, and who want to work full-time.

The "discouraged" are those who haven't actively looked for work in the last year.

So it's to be expected that the U-6 rate will always be higher than the U-3 rate.

Examining the data

The U-3 number is dropping. No argument there. It peaked at 10% in October 2009, and has since dropped to 7.8%. As I pointed out previously, that 7.8% is lower than after President Obama's first full month in office, which makes President Obama's record on unemployment better than any of his three Republican predecessors.

The contention of the conservatives is that the U-3 number is only dropping because more and more people are getting discouraged and not looking for work. If that's the case, we should see that the U-6 number is rising as more and more people stop looking for work or accept part-time jobs.

But that isn't the case. The U-6 number hit its peak (17.2%) in October 2009 and, like the U-3 number, has been dropping steadily since then. It's now down to 14.7%.

Here's a graph of the U-3 (blue) and U-6 (green) numbers since February 2009 (President Obama's first full month in office)

As the data and chart clearly show, the U-6 unemployment rate is higher than the U-3 unemployment rate. That's to be expected. The chart also shows that the U-6 number, although not dropping as fast as the U-3 number, is nonetheless dropping.

So it appears that the claim that the U-3 rate is dropping because more and more people are discouraged is, at best overstated, and at worst completely false.