The Fault Lies Not in the Stars But in Our Politicians

As I predicted on this page at the beginning of the year, the housing market has turned the corner.

The Zillow Home Value Index experienced the first year-over-year increase since 2007, the fourth consecutive month of increasing value. The Federal Housing Finance Agency also reported the fourth straight month of rising home prices in May.

At their current rate, new home sales are on track to beat last year’s numbers by 17 percent. Compared to a year earlier, the inventory of unsold existing homes has been declining for sixteen consecutive months. In fact, this month we saw the biggest drop in inventory ever reported.

Last month, housing starts reached their highest level since October 2008. This month, home builder confidence reached the highest level since March 2007. Foreclosures in distressed markets like California have reached their lowest level since 2007.

In other words, our long national nightmare is over.

And yet, our malaise has only deepened. Output growth is weak, unemployment remains stuck at 8.2 percent, and the twin engines of growth — exports and manufacturing — have stalled. If the cause of our discontent has reversed course, what fresh hell is holding us back?

Some of the blame belongs to the European Union, whose weakness has driven the euro down, making the U.S. dollar more expensive. As a result, exports have flatlined, along with the manufacturing sector that depends on them.

But the real sand in the wheels has been the cutbacks in Washington.

No, that’s not a typo. Despite all the news you’ve heard about the big bad budget deficit, the truth is that the government has been retreating, leaving the private sector to fend for itself.

In the two and a half years since the end of the recession, government spending, adjusted for inflation, has fallen by 2.6 percent. Government purchases have also fallen by 2.6 percent. Government employment has fallen by 2.7 percent.

Compare that to the two and a half years after the end of the 1982 recession, over which Ronald Reagan presided. By this point in Reagan’s term, government spending had increased by 10.2 percent, government purchases had increased by 11.6 percent, and government employment had increased by 3.1 percent.

Or we could compare to George W. Bush. From 2000 to 2007, government spending grew faster than it has from 2007 to 2011.

Any way you measure it, government spending growth has been very weak.

From 1980 to 1984, real government spending increased over 14 percent. From 2008 to 2012, in contrast, it has increased only 6 percent. And, since the beginning of last year, it has turned negative. In fact, this year, real government spending per capita is falling faster than it has since the aftermath of the Korean War.

But the real bloodbath is yet to come. On January 1st, $110 billion in automatic spending cuts are scheduled to kick in, followed by over $1 trillion more in spending cuts and tax increases over the next decade — unless, of course, Congress enacts a new law to postpone them.

Republicans are particularly concerned about this so-called “fiscal cliff,” not only because they abhor tax increases, but especially because half of the spending cuts will come from the Pentagon. Democrats are equally concerned about the possible extension of the Bush tax cuts for the rich, which are scheduled to expire at the end of the year.

So Democratic Senator Patty Murray made them an offer: We will agree to postpone the “fiscal cliff” if you will agree not to extend the Bush tax cuts for household incomes above $250,000.

Senate Democrats held up their end of the bargain on Wednesday, passing a bill to extend all the Bush tax cuts below $250,000. But Washington insiders say that the bill is as good as dead in the Republican-controlled House.

House Republicans, it seems, are determined to hold the economy hostage to the selfish interests of the rich — yet again.

But it doesn’t have to go down like this. Weak economic growth is not a fait accompli. The fundamentals of our economy are improving. The recovery will accelerate…if the government steps up like it did in previous recoveries.


This op-ed was published in today’s South Florida Sun-Sentinel.

Don’t Blame Colleges for Our Kids’ Problems. Blame the Economy.

As Congress tries to agree on a way to keep interest rates on student loans from rising, many Americans are questioning the value of an increasingly expensive college degree.

We’re talking about serious costs. Even in-state tuition at public colleges, supposedly the most affordable of all, is rising at more than twice the rate of inflation. The average cost for four years for in-state residents adds up to more money than most households earn in a year. Almost a third of American households have less than $10,000 in net savings to pay for at least $30,000 in college tuition. Even if students take Mitt Romney’s advice and “shop around” for the cheapest schools, they’re still going to have trouble making ends meet.

That’s why approximately 3 million households owe $50,000 or more in student loans.

At the same time, the rate of unemployment for 20-to-24-year-olds is twice the rate for 45-to-54 year-olds. Can it be that a college degree no longer buys what it used to?

Ask this question often enough, and you’re bound to find someone blaming it on “kids these days.” As if the jobs are out there, we’re just not willing to work for them.

The more sophisticated critics suggest that we’re experiencing a “labor mismatch,” where the skills of the workforce don’t meet the needs of the employers. Supposedly, colleges don’t teach us what we need to know to make a living anymore.

There are several ways to test this theory.

One measure is the “mismatch index” created by economists for specifically this purpose. The mismatch index compares the number of vacancies to the number of unemployed workers. If there really is a labor mismatch, vacancies should rise, but unemployment shouldn’t fall because the unemployed workers don’t have the skills to fill the vacant jobs.

But the mismatch index has not increased in the last decade. In fact, it was higher in 2003 than it is now.

Another measure is inflation. When the economy grows, companies should expand, but during a labor mismatch, they can’t. There aren’t enough skilled workers. So they raise prices instead. It’s the only way to keep revenues growing.

But inflation has been very steady and low throughout the past decade. In fact, it is now lower than it was five years ago.

Yet another measure is disparities in unemployment between different industries. For example, manufacturing jobs have been declining, and service jobs have been taking their place. If there’s a labor mismatch, we might see a recent rise in unemployment in manufacturing that outpaces the rise in other industries.

But that’s not the case. In fact, manufacturing has been one of the bright spots in this weak recovery. After losing jobs every year since 1997, the manufacturing industry has actually been increasing employment in the last two years.

Maybe we’re looking at the wrong industry. After all, the recession was caused by the bursting of the housing bubble. All those construction workers lost their jobs, and they don’t have the skills to become engineers or accountants or whatever the modern economy demands. Are they suffering from this mismatch?

Not really. While their unemployment rate is higher than most other industries’, it’s also declining faster than average. About 10 percent of unemployed workers used to work in the construction industry, the same as in 2005. Construction workers are actually finding new jobs at a faster rate than the rest of the unemployed, and they’re less likely to drop out of the workforce because they get discouraged at the lack of jobs. When they do get new jobs, over 70 percent of them return to the construction industry.

So what’s really causing high unemployment among today’s young adults? Probably a deadly combination of the weak economy and their lack of work experience. The most experienced workers are the first to be re-hired when the economy recovers. Unfortunately, the longer it takes the economy to return to health, the longer those young adults will lack work experience, and the harder it will be for them to catch up in the future.

Don’t blame the victims — or the colleges they attended, for that matter. Blame the people who wrecked the economy and sabotaged our children’s future.


This op-ed was published in today’s South Florida Sun-Sentinel.